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Per Cent Value of Lumber Forest Market Products

Volume 52 No. 2, January 11, 2002

The Value-Added Scenario

You’d have a hard time finding anyone in the primary sectors of the Canadian forest industry these days unwilling to admit we have a crisis on our hands. This crisis is most apparent on the B.C. coast, where sawmills have been closing like hot dog stands on a rainy day. But while the impact hasn’t been as crucial for B.C. interior mills and mills in the rest of the country, they certainly haven’t escaped unscathed.

The crisis I’m referring to is the collective 19.3 per cent countervailing duty the Americans imposed last August, plus the 12.6 per cent antidumping assessment implemented a short time later. This combined 32 per cent tariff has set the Canadian forest industry on its ass and though negotiations have raised hopes several times during the last few months, as the new year begins the problem remains unresolved.

No matter how you look at it, there is too much lumber in the marketplace and too much production capacity. Mill shutdowns are painful, but they are inevitable in this situation. Lamentably, anyone thinking that once this current difficulty with the Americans is overcome everything will go back to the way it was, is only fooling themselves. Over the last four decades, forest companies everywhere sharpened their technology, honed their competitive strategies, and increased their productivity to the point where they have now made themselves obsolete.

But while primary lumber producers grapple with mill closures and production curtailments, one segment of the industry, the value-added sector, is proliferating. In B.C., this sector presently employs over 20,000 workers and generates about $4.68 billion a year. Around 73 per cent of our value-added operations export products to the U.S., and while regular lumber is subject to anti-dumping and countervail assessment, most value-added products cross the border unassessed. In addition, about 43 per cent of B.C.’s value-added product goes toJapan, where almost no import duties are applied.

The B.C. value-added sector includes cabinetry, engineered wood products, furniture and fixtures, millwork, and semi-finished remanufactured products. In cabinetry, over 90 manufacturers employ close to 900 workers and generate revenues of almost $100 million. With nearly 190 working plants in the province, engineered wood products have the largest number of manufacturers. This sector employs close to 3,700 workers and generates sales revenues above $650 million annually.

Furniture and fixtures employ approximately 1,100 craftsmen in 75 provincial facilities. One of the fastest growing categories, this group contributes approximately $140 million annually to the provincial economy. Millwork employs over 1,800 workers in B.C. and generates approximately $234 million in shipments from 120 manufacturing facilities.

The last category, semi-finished remanufactured products, is the largest sector employer in the province. With 170 plus companies in B.C., this group employs close to 6,000 people and generates revenues of $1.590 billion.

A recent news release from BC Wood, a not-for-profit association of over 550 value-added wood products manufacturers, quotes Bill Wilson, director of the Industry, Trade and Economics Research Program for the Canadian Forest Service.Wilson has just produced a report entitled “The Structure and Economic Contribution of Secondary Manufacturing inBritish Columbia: 1990-1999.” In his report,Wilson says sales in the value-added sector have increased 70 per cent over the last decade.

Highly supportive of value-added producers,Wilsonoutlines the conditions he feels are necessary for the continued success of this sector. He says with appropriate strategic product and marketing efforts, tight manufacturing cost controls, and complementary public policy, there is every reason to be optimistic about these major gains continuing.

General manager of BC Wood is Bill Downing, who reports that at the current rate of growth, sales in this sector are expected to reach $10 billion in less than seven years—double their present level. Compare that to predictions for the solid wood sector over the next seven years.

According to Downing, the market for value-added products in theU.S.alone is estimated at $200 billion (I presume he means per year), while for the primary wood products industry, it is around $35 billion. Downing explains that the value-added sector has such a high rate of return because remanufacturing adds so much value to the product.

Albeit somewhat self-serving, Downing believes the B.C. forest industry should be adopting new strategies for survival. He says the first step is to shift from focusing on volume to focusing on value. He advocates evolving from an industry that primarily turns logs into 2x4s to an industry that cuts a portion into feed stock for value-added operations.

Downing says marketing strategies must also change. The current model of first making the product then seeking a market for it must be reversed. He believes a better way is first find the market, then develop products that best suit market needs. To grow and expand the forest-based economy, says Downing, the industry needs to innovate, upgrade, and anticipate international needs. He cautions, however, that finding global market opportunities will require both public and private investment.

If you want to read Bill Wilson’s full report, you can download it from http:// bookstore.cfs.nrcan.gc.ca. You can reach Bill Downing, general manager, BC Wood, at 1-877-422-9663 or 604-556-3373

C-Housing Up

Canada Mortgage and Housing Corporation (CMHC) reports that seasonally adjusted annual housing starts inCanadarose 4.0 per cent in December to 175,500 units. That’s up from 168,800 units the previous month. Urban singles jumped 2.0 per cent from 84,000 units in November to 85,700 units in December, while urban multiples increased 7.9 per cent from 63,300 in November to 68,300 units in December.

Actual urban starts year to date are 8.6 per cent higher for 2001, compared to 2000. Single detached units increased 5.2 per cent while multiples, the main source of strength, shot up 13.0 per cent. Phillippe LeGoff, senior economist at CMHC, says this is a strong finish for Canadian housing starts. He attributes the favorable results to tight resale and rental markets in many metropolitan areas.

Pulp Holding

Pulp is holding at US$465-470 per ton. Inventory in November increased by 97,000 tons to 1.598 million tons. The November operating rate for Norscan countries was pegged at 90.7 per cent. Deliveries were set at 85.7 per cent.

COFI Challenged

Giants of the B.C. forest industry are challenging the value they are getting from umbrella association COFI (the Council of Forest Industries). At least one major player, Canfor, has already pulled out of COFI and two of its affiliate organizations. Canfor, which contributes about 10 per cent of COFI’s annual budget and about 30 per cent of the Northern Forest Products Association’s budget, canceled its memberships effective December 31. Interfor says it is also assessing the cost benefits of COFI, as is Weyerhaeuser. The Coast Forest & Lumber Association, a COFI affiliate, says it wants changes to the organization.

As an umbrella organization, COFI services members in all regions of the province, but coastal companies say their operations and interior operations are too different to be represented by one organization—par-ticularly since the lumber sector formed the B.C. Lumber Trade Council to battle the Americans over softwood export issues. As well, mergers and purchases over the last several years have resulted in behemoth companies which wield significant political power on their own and are able to bypass the benefits of an association such as COFI in dealing with government.

With a budget of $4 million a year, COFI has 105 members and is affiliated with six member associations in various areas of the province. Canfor says it pays about $400,000 a year to COFI and another $1.3 million to the Northern Forest Products Association. In total, Canfor claims to pay upwards of $10 million a year in association dues.

A key issue for Canfor has been the provincial government’s practice of waterbedding, where stumpage is raised in one area to compensate for lower stumpage rates in other areas, in order to maintain revenue flow.

Left in the lurch are medium and smaller sized operators, to whom an association such as COFI is an important input conduit for the political decision making process. Without this venue, these operators are likely to be overrun by the machinations of the big companies.

Market players are surfing tiny ripples of spotty activity, surfing the Internet, and generally smurfing around the office. Although activity was very light, minimal levels were steady. Traders had to be patient and take one order at a time. Spotty business contributed little to the tone of prices in a two-tier market.

Although mills looked at small counters, they weren’t feeling the pinch of oversupply, so they tried to hold the line within a few dollars of their lists. Wholesalers liquidated futures positions and speculative inventories with no fanfare. A few interested buyers found bargains at the secondary level and that is where we pegged our market prices this week. Order files were small—measuring under one week at most mills.

KD R/L Std&Btr 2×4 went down $2 to $226. In KD R/L #2&Btr, 2×4 chipped off $4 to $246; 2×6 unbent $3 to $222; 2×8 held at $230; 2×10 climbed $5 to $240; 2×12 flushed $5 to $310. In Utility 2×4, scarcity drove prices upward $5 to $150.

Studs Flaking

It’s beginning to look more like winter in central B.C., where both snow and temperatures are falling. This puts stud mills in the mood to produce. Unfortunately, transportation is causing headaches. Trucks are scarce, particularly on theEdmontonroute, and this has loads backed up at all mills. A bottleneck of cars on the BCOL is causing fits for some operators in Fort St. James, while others are enjoying a plentiful supply in all car sizes. Order files at the mills are into the week of January 20.

MSR Spotty

A diet of lean pockets is sustaining MSR traders this week. Although spots of activity are apparent, it’s the flat areas between them that define the present market. The usual customers, truss manufacturers and distributors, are buying replacement inventory as they use up stock. Order files are approximately one week.

Cedar Think No Evil

If you hold positive thoughts, you may only notice positive outcomes. That is the philosophy in cedar this week. Although the current market is not especially active, planning for the first and second quarters continues. After long shutdowns in the fall and over the Christmas holidays, mills have nothing on the ground to fill orders. Traders are under little pressure to make deals, although they are listening to some small counters. Customers are buying out of need rather than greed.

Green Fir Foggy

The green fir business is so unclear, it’s like walking in a dense fog—you don’t know where you are going to come out. Tone firmed midweek after a squishy beginning. Supply and demand are apparently well balanced at this time, but in a market as mercurial as this one, this situation can turn in an hour. Customers are buying at quoted levels and mills are pricing defensively. The southernCaliforniamarket is heating up and can shift into high gear with little warning. As green fir 2×12 dimension becomes more cost competitive in light of rising southern yellow pine prices, buyers are sure to see the value and step in.

OSB & Plywood

Basking in what for many is the mildest January weather in memory, the panel market in centralCanadais unusually active. Some demand comes from stronger than normal buying in theU.S., but most of the market push is local. Plywood, which comes mainly from westernCanada, is increasingly scarce, with no relief in sight. OSB is easier to find, but with mills reporting order files into early February, prompt wood has to be obtained from secondary suppliers at higher prices. Producers attempted to raise 7/16”Torontoprices late last week to C$225, but were unsuccessful. This week 7/16” prices settled down $10 at C$215, with a few sales at C$220.

In westernCanada, decent business was reported in the B.C. lower mainland and inCalgaryandEdmonton. “Inventories are light and there’s no winter weather. They have to buy,” said one wholesaler. The mild weather also prompted some spec buying.U.S.buyers in southernCaliforniaandArizonaadded to market pressure. Most of the 7/16”Vancouversold this week at C$200, down $5 from a week ago.

Cargo & Reload

The weather is still mild in theU.S.northeast, but lumber market activity this week was disappointing. The week started well enough, but business turned slow on Thursday. Traders reported their customers are buying small mixed trucks for the short term. Cooler weather is expected and since buyers feel winter will soon arrive, they see no reason to build inventory. Stocking wholesalers have lumber on the ground and all have experienced this sort of winter buyer reluctance. “We’ll wait. They’ll buy from us when whey need lumber,” said one patient wholesaler.

Green fir and hemlock selling prices were little changed from a week ago. Lower prices generally don’t boost sales at this time of year, agreed traders. Supplier mills in theU.S.west lowered green fir delivered prices this week by $5 for most items, but there was little interest from northeastern buyers.

Announcements

The Northern Forest Products Association (NFPA) has announced cancellation of its spring annual convention in Prince George, B.C. NFPA says its structure is currently under review and in light of the uncertainty pending possible restructuring, it has decided to cancel the 2002 convention.

Slocan Forest Products of Richmond, B.C. has announced that Brandt Louie is replacing I.K. Barber as Chairman of the Board, effective February 15, 2002, Barber announced his retirement from the position last October. Presently Chairman and CEO of London Drugs Limited and President of H.Y. Louie Co. Limited, Louie has been a member of the Slocan Board of Directors since 1994. In addition to these responsibilities, Louie is also a governor of the B.C. Business Council, the Vancouver Board of Trade, andSimonFraserUniversity, as well as a director of the Royal Bank ofCanada and theHeartCenter,DukeUniversityMedicalCenter.

Daaquam Lumber Inc., a Quebec based company, has announced it has signed a letter of intent to purchase International Paper Co.’s Costigan mill site in Maine. The company plans to build a new state of the art sawmill there, employing approximately 140 people. Selling price of the property was not disclosed nor was the dollar value of the new plant or its production capacity.

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Year Lumber Prices per Products Industry

Volume 52 No. 1, January 4, 2002

Facing the New Year’s Hangovers

In putting my thoughts together for the start of a new year, I’m having trouble coping with two inescapable facts: first that the last two weeks went by so quickly, and second, that so little has changed between December 14 and now. Normally, in this fast-paced lumber business, there would be lots of events and developments within a two week period, but in this case, no. I’m not complaining though; the lack of activity means most of us probably took time off for a well deserved rest, and for two weeks, at least, we got a much needed respite from the struggles that plagued our industry for most of last year.

I don’t plan on rehashing last year with all its inherent dilemmas, since I’d like to ignore them just as much as the next person. But despite what happened or didn’t happen, there are a few hangovers on the list. Foremost, of course, is a lumber trade agreement and I’m sure nobody needs reminding how complex and difficult this imbroglio has become. In early December, there was speculation this problem would be resolved before Christmas, but only politicians and dunderheads believed that.

Some major Canadian lumber producers are currently contemplating a new strategy for putting the squeeze on American competitors: improving the quality of their output. This entails reducing Standard & Better output in favor of 2 &Better output. Such a change wouldn’t necessarily mean higher prices for framing lumber, but it would certainly mean higher quality framing lumber. Having to make better products might be just the ticket to complicateU.S. lumber producers’ lives.

Whether by accident or design, this is a strategy European producers have been using in theirU.S.marketing efforts. European lumber is generally considered a high quality product and consumers may ultimately be willing to pay an import premium to get it. Only the market will tell.

Despite what everyone seems to think, the lumber trade problem is actually very easy to resolve: if we allow the Americans to come up here and help themselves to whatever timber they want, allow them to move the logs across the border without any encumbrances such as payment or duties, and do nothing more than smile sweetly as our entire industry disappears into the U.S., then I’m sure we can have lumber trade peace. If not, I guess we’ll just have to put up with the crap they dish out and continue besting them any way we can.

The lumber trade dispute may be one of the biggest hangovers from last year, but it’s not the only one. As we are all too often reminded, there is currently too much lumber in the marketplace and too much production capacity in the industry. These are two more hangovers we will have to grapple with this year—especially on the B.C. coast.

In assessing this situation for B.C., the provincial government put Dr. Peter Pearse, a renowned forest economist and University

of B.C. professor, on the problem, and in late December, he issued his report. Due, I’m sure, to timing, Pearse hasn’t so far garnered much ink for his efforts, although that will likely change in the forthcoming weeks. Many industry people believe, however, that another three to five sawmills will have to permanently close to bring coastal mill capacity and timber supply into line.

If this is representative of the current coastal situation, it certainly puts the provincial government in a tight spot regarding Skeena Cellulose, the government subsidized forestry operation atPrince Rupert. The B.C. government owns 73 per cent ofSkeena, after bailing it out of bankruptcy in 1997. Should our Liberal government put up more money to keepSkeenain operation or let it sink into oblivion? Efforts to sell Skeena haven’t exactly garnered a plethora of buyers, but if the province puts up more money and keepsSkeenaoperating, it could be at the expense of other more potentially viable operations elsewhere. There’s going to be pain—it’s just a matter of where.

With so many hangovers to contend with, one couldn’t be chastised for feeling morose, but there’s at least one more major problem staring us in the face this year and that’s the north central mountain pine beetle infestation. This attack now covers an area several times the size ofVancouver Islandand accounts for a volume equivalent to a year’s cut for the entire province. The infestation is so large, nobody knows how to cope with it. I’m still standing by my prescription that the best treatment is to kiss the wood goodbye and burn it. Nobody needs wood of any sort now, let alone beetle-killed wood, and should we ever get around to harvesting it, the trees would be too dry and cracked to use anyway. We might as well swallow the medicine, burn ‘er up, and try not to be so stupid next time.

In summing it all up, there’s no doubt last year was a remarkable year, provided you don’t connect the word remarkable with benevolency. As we start this new year, there are challenging times ahead. The problems we faced before we took those holidays didn’t disappear with the outgoing year. They’re still there, just as big and just as nasty.

In the years to come, we will probably look back on this time as a period of major change. I consider the recession of the early 1980s a milestone period in this industry’s history, and 2001/2002 are shaping up to achieve a similar status. We don’t know how some of these problems will be resolved, but there is one outcome that can be predicted. This will be the time when the Canadian industry rebuilds itself yet again to become even more efficient and more competitive. I feel confident making this prediction because it’s the only way to survive and we will survive.

U.S. Starts Up

For the record, November housing starts in theU.S.jumped 8.2 per cent to a level of 1.645 million units, while building permits increased 5.3 per cent to a level of 1.564 million, based on seasonally adjusted annual calculations. Actual figures, however, show the opposite results, with November starts down 11.4 per cent and November building permits down 12.1 per cent. While seasonally adjusted results were unexpected, actual results are normal for this time of year. The higher than expected activity on the seasonally adjusted annual figures is being attributed to continuing low interest rates.

House Sales Surge

The National Association of Realtors (NAR) reports that sales ofU.S.existing homes in theU.S.rose 0.6 per cent in November, demonstrating that despite indications of a slow-down in the overall economy, the housing sector continues to move forward. The seasonally adjusted annualized selling rate for previously owned homes was reported at 5.21 million units in November, up from the October projection of 5.18 million units.

Chief Economist of the NAR David Lereah said it is obvious the country has overestimated the negative impact of the September 11 events on the housing sector. Confidence is up all across the country and sales are higher than expected. Home sales for the year are looking to surpass the 1999 record of 5.205 million units, Lereah said. Higher mortgage rates could dampen the activity, but Lereah remains optimistic.

Terminals Merge

Western Stevedoring, which operates the Lynnterm facility inVancouver, B.C., has struck a deal to take over the neighboring Seaboard International Terminal to create one of the largest forest products handling facilities inNorth America. The deal, which took effect at the beginning of January, gives Western Stevedoring seven berths and eight warehouses in an area that covers 61 hectares (150 acres), including 49 hectares (122 acres) of outside storage. The combined operation provides an efficient and cost effective facility for the movement of western Canadian forest products through break-bulk trade. In addition to the full range of forest products, the facility will handle steel, heavy lift, and special cargo shipments.

Bowater Merges

Bowater Inc., the second largest newsprint producer inNorth Americaand fifth largest in the world, has announced it is

merging its two Canadian operations. Alliance Forest Products Inc., acquired in 2001 for $1.2 billion, and Avenor Inc., acquired in 1998 for $3.5 billion will now be merged under the name Bowater Canadian Forest Products Inc. Bowater says the merger has been implemented to expedite economies and gain tax efficiencies.

The move comes at a time when the pulp and paper industry is facing poor market conditions and weak print advertising activities. Newsprint is currently selling for US$465 a tonne in Europe and US$475 to US$485 inNorth America. This time last year, newsprint was selling for approximately US$550 per tonne.

With 12 mills inCanada, theU.S., andKorea, Bowater has the capacity to produce three million tonnes of newsprint per year and 2.2 million tonnes of lightweight coated paper. The company also has 13 sawmills inNorth America.

WSPF Extended Holiday

In this first week of 2002, traders are optimistic. Although economic news was iffy throughout the fall, indicators are leading analysts to predict an improvement through 2002, beginning with a strong first quarter. From interest rates to the improving post-holiday consumer confidence, the downward spiral anticipated by pundits doesn’t appear to be materializing. If the positive move continues, recovery in theU.S.economy should be reflected in growth statistics by mid-year.

This week began on Wednesday and barely got started before it was over. With schools and many businesses holding off until Monday the 7th, traders and customers declined to return from their Christmas holidays. The result was another uneventful week.

After the two-week shutdown, mills were under little pressure to retract from their established price levels. Secondary suppliers were more malleable, however, since they had wood they needed to unload. Wholesalers offered second tier lumber to customers at attractive prices that were approximately $10 under mill levels.

This resulted in a slight decline in list prices from the previous week. KD R/L Std&Btr 2×4 reduced $2 to $228. In KD R/L #2&Btr, 2×4 held unchanged at the mill level of $250; 2×6 spun down $10 to $225; 2×8 chipped off $10 to $230; 2×10 minused $7 to $235; and 2×12 stood firm at $315.

Studs Coming Back

Stud producers are making the long, slow climb out of their long winter’s nap. Prices on KD SPF 2×4 92-58” PET studs took a $5 tuck to $225. Truck transportation continues to be tight from central B.C., although rail cars have returned to normal. Fortunately, the backlog of shipments waiting to be loaded is minimal.

MSR Shaking Cobwebs

Not much deep thinking went on in MSR over the holidays. Customers came back late this week, shaking the cobwebs from their heads. Prices continued to grind sideways for lack of anyone knocking down the numbers with serious counteroffers.

ESPF Running Low

Inventories are low in the field and in the mill yards in easternCanada. Although the volume of orders was small, the lack of pressure to sell allowed the mills to hold firm on their prices. With long curtailments amounting to a large volume outtake, producers held new orders to a maximum of two weeks.

Cedar Panic in Field

End users could find the shelves bare of cedar products at their local lumber yards. Year end inventory management strategies reduced stocks on hand to bare bones. With minimal stocks at the mills and long shutdowns just ending, order files on the more desirable items are expected to quickly ramp up. Urgency, however, will have little impact on how soon orders will arrive.

OSB & Plywood

With no snow to speak of in theTorontoarea, construction is going on without interruption. The panel business is thriving. OSB prices are moving up and plywood is still scarce. Inventories have become depleted and buyers have chosen this short three-day week to replenish stock Wholesalers are delighted, reporting that they can sell as fast as they can obtain new stock from their suppliers. Buyers inPennsylvanianeeding prompt wood have also been in the market. Producers report they have order files into the week of January 14. 7/16”Torontois now selling for C$225.

In B.C., even record mild temperatures cannot get the panel business moving. Most of the business is coming from southernCalifornia, where retailers are doing the buying. Mills report order files out to the week of January 14. In a thin market, 7/16”Vancouversold this week for C$205.

Cargo & Reload

There is snow to the north and snow to the south, but no snow in theU.S.northeastern lumber market. Sales were slow during the period from Christmas to New Year, but perked up this week. While everyone needs lumber, many buyers anticipate lower prices next week, when most mills are back in full production. Yards and retailers are buying carefully, but mixed truck orders are plentiful. Stocking wholesalers reported good sales volumes during the three working days. Green fir selling prices declined by $5 to $10 this week for most items, while supplier mills in theU.S.west raised their delivered prices.

Refer to Madison’s Lumber Reporter for the latest news in the lumber industry.

 


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American Lumber Mills Increase Buying with Industry Prices

Volume 52 No. 8, February 22, 2002

Letting the Dogs Bark

There probably isn’t anyone in the forest industry not intimately acquainted with the gory details of the softwood lumber negotiations, which have been ongoing betweenCanadaand theU.S.for nearly a year. Every time I pick up a newspaper, turn on the radio, or expect to relax by watching something stupid on the box, I’m besieged by the latest details in the softwood lumber negotiations. The journalistic community is like a bunch of dogs all barking to no avail, but making a hell of a noise in the process.

Although there are lots of technical reasons why the trade problem hasn’t been resolved over the last year, the nitty gritty seems to be that our friends in the secretive American lumber lobby simply don’t want the issue settled unless they get their own way. We term the exercise of meeting to discuss a problem negotiation, but as this process is supposed to propel the issue forward towards a settlement, this situation has been anything but. No matter how you slice it, most Canadian conversion plants can whip the economic pants off those of our American competitors any day of the week and naturally they don’t like that. If you want proof, just look on the store shelves. Canadians routinely send their products into theU.S.—superior products at that, I might add— and put them on the store shelves for less money than products made right in the local area. Were the tables reversed, I wouldn’t like that either, so I can’t honestly fault them for their adverse reaction, but reality is the reality.

Naturally the American lumber lobby doesn’t want to face up this hard economic fact, so to combat the situation, it claims we are subsidizing our lumber production and therefore competing unfairly. That’s a lot of hooey, as has been proven by at least two past international trade tribunals that found inCanada’s favor. I’m sure when these same American agitators go to bed at night they know the truth of the situation, but that doesn’t change the political struggle.

Unfortunately,Canadacan’t prevail if the Americans don’t want to settle. Being our only major customer, theU.S.has us by the short and curlies, which doesn’t exactly put us in the power position. If we don’t like how the Americans are behaving, we don’t have to sell to them, right? No—wrong! We do have to sell to them. That’s where all the wood frame houses are being built. Had we another major market where wood frame houses were the mainstay abode, we could tell the Americans to go blow it out their snout, but that nirvana doesn’t presently exist. What’s left for us is simply to work out how much we have to pay to sell them our wood.

I always have trouble at this point, swallowing the fact that this American lumber lobby is so easily able to hold the American home buyer hostage. How can it be that such a relatively small representative group, whose membership is a hush, hush secret, can inflict a financial burden on the American people and everyone lets them get away with it? Only inAmerica, I guess.

Having met with little but exasperation at the negotiating table, current thinking inCanadais to fall at the feet of President Bush and beg for divine intervention. Many Canadians believe this is the only way the lumber dispute will be settled. I’m sure we can’t expect anything like fair and equitable treatment no matter what tactic we pursue, but at this stage, any settlement costing less than the one imposed last year as an interim measure is looking pretty good.

Unfortunately for us there has been some very hefty American baggage attached to the issue along the way, and while it might be possible to arrive at a more even-handed arrangement,Canadacould end up losing its forest industry in the bargain. The

Americans want our logs—especially those juicy high value logs on the B.C. coast—and they are pretty determined to get them. Especially now when so many of our mills are closed and aren’t using their timber allocations to the fullest extent.

President Bush hasn’t exactly shown a lot of concern for the lumber trade problem, despite having been set upon by ourOttawatalking head of hair, Pierre Pettigrew. Lumber trade is a pretty minor issue for Bush, compared to some of the situations staring him in the face right now. He’s been running around the world kicking bee hives here and bee hives there, and the result is mad bees all over the place.

Deal with a lumber trade dispute? Phooey!

Should Bush decide to intervene in the lumber trade wars, not only is there little incentive to resolve the dispute, since it will surely impair some of his own, but he may not have as much sway in the matter as some think. For instance, by a marvelous process, theU.S.congress has been horns-woggled into backing the American lumber lobby, and it has powerful weapons at its disposal with which to stand its ground.

For example, the Administration, Bush or otherwise, is powerless to negotiate while a congressional investigation is underway. For negotiations to take place, theU.S.lumber industry would have to agree to terminate the investigation and waive its rights to redress, and you know how much chance there is of that happening. Besides, should the moon actually turn into blue cheese and this occur, you can bet the issue would be challenged in the courts by some other kooky group such as the environmentalists, and the whole thing would start all over again.

Congress naturally will take the side of its own industry and defend it to the death against a perceived interloper such as the Canadian forest industry. Seems all any American has to do to get this kind of support is file a complaint against some perceived wrong and you’ve got congress in the palm of your hand.

So while the media rants continuously on each unfolding wrinkle of this dispute, and while Canadians readily get into the act by commenting on this swing or that change in the negotiating process, my guess is that it’s all part of arriving at a solution. Should such a solution ultimately evade us, the only recourse may be a trip to the World Trade Organization, although resolution there also depends on the willingness of both sides to agree. In truth, the only way to come to an agreement may be to play the political game to the max, so we may as well let the dogs bark.

Starts Up Again

TheU.S.commerce department reports that January housing starts rose 6.3 per cent to an annualized rate of 1.678 million units. Also on the increase were January permits, which rose 3.1 per cent to 1.706 million. Actual starts are reported at 108,300, an increase of 4.4 per cent over December and up 1.8 per cent from a year ago, while actual permits totaled 113,900, an increase of 3.7 per cent over December, but down 0.8 per cent from a year ago.

Single family starts recorded an annualized increase of 3.5 per cent to a rate of 1.345 million units, while multi family starts increased 8.3 per cent to a seasonally adjusted rate of 287,000 units.

The southern region of theU.S.was the most active, reporting an January increase of 14.4 per cent, while the northern region rose 8.7 per cent. January starts in both the midwest and the west fell, with the midwest reporting a decline of 0.3 per cent while the west dropped 3.6 per cent.

Experts attribute the continuing favorable results in housing activity to unseasonably warm weather and low mortgage rates.

Japan Still Down

Japanreports it imported 3.965 million cubic meters of logs fromNorth Americain 2001, down 15.1 per cent from 2000. This is the lowest level in 36 years and the first time since 1965 that log imports inJapanhave dipped below 4 million cubic meters. The most recent peak was in 1989, when the country imported 11.827 million cubic meters of logs. The volume imported in 2001 was down 66.5 per cent from this peak.

Many Douglas fir and hemlock mills inJapanremain closed, as Japanese builders are buying lower cost European laminated veneer lumber in place of solid wood products. Demand for North American logs inJapanis expected to decrease further in 2002.

China Buying

Chinahas started buying more logs. Including hardwood volume,Chinapurchased a total of 15 million cubic meters of logs between January and November 2001— up 21.8 per cent over 2000. The additional volume included 7.358 million cubic meters of logs fromRussia, a jump of 44 per cent.

Chinaalso increased the volume of radiata pine it is buying fromNew Zealand. In November 2001,Chinapurchased 132,000 cubic meters ofNew Zealandradiata pine, a six fold increase over the volume it imported a year ago. This is the first time imports of radiata pine have exceeded 100,000 cubic meters in a single month.

New B.C. Budget

The forest industry has generally reacted positively to the new B.C. budget delivered by the Liberal government this week. Included in the budget are provisions to: establish a designated working forest where utilizing timber is the primary operation, base stumpage rates on the market price for timber, revise the present

Forest Practices Code, and reform the timber tenure system. One change the industry wanted and didn’t get was an increase in the provincial allowable annual cut, although Premier Gordon Campbell didn’t rule it out. The government wants to ensure an increase in the cut is sustainable and based on sound science.

Troublesome items in the budget include: the increase in sales tax from 7 per cent to 7 ½ per cent, downsizing within the B.C. Ministry of Forests, and downloading of costs such as road maintenance and forest fire fighting. Optimism over the budget changes is still somewhat reserved, however, since details on how the changes will be implemented have yet to be revealed.

Pulp Down Again

The benchmark price for pulp fell US$2.60 per ton this week, to US$449.70.

WSPF Digesting

Two very active weeks were followed by a peaceful one. Buyers digested and adjusted their inventory records to reflect large purchases made in the previous 10 days. Having sold well and built large order files, mills didn’t need to budge from their list prices. Odd sales in small quantities sold mainly to loyal local customers. Wholesalers considered counteroffers of up to $5 below mill levels. Order files extended into the week of March 11 at some mills.

Prices on KD R/L Std&Btr 2×4 bumped up $4 to $272. In KD R/L #2&Btr, 2×4 inched up $3 to $275; 2×6 found $4 to $270; 2×8 added a fiver to $250; 2×10 gained $4 to $290; and 2×12 plumped up $5 to $360.

Studs Take Breather

After the turbulence of the previous week, stud traders took a breather. Following the flurry of heavy sales, the first order of business was to process all the orders and find transportation for deliveries. Unfortunately, railcars on the CN and BCOL were hard to source; 73’ and 71’ flat cars were hardest of all to get. A backlog of shipments can be expected to add extra delivery time to three week order files.

KD Fir Filling Holes

Customers came in for a meager round of buying as a follow-up to the frenzy of the previous week. Buyers filled holes that showed up after sifting through the snowstorm of paper work on the orders that would be arriving in the next few weeks. Traders found the week very quiet and no one was in a rush to do much of anything. Phones were quiet. Shipments and pumping out production were the focus at the mills. Order files were into the first week of March at most operations.

Shingle Materials Scarce

Producers of cedar shakes and shingles depend on mixed species cuts to provide them with raw materials. Logging operations across B.C. virtually stopped last fall after the anti-dumping and countervailing duty rulings. Over the winter, cedar log supplies have diminished to the point where many mills have almost no log decks; some mills measure their material supplies in days and most have under two weeks of logs on hand. A heavy snow pack in the areas where blocks are produced has also nearly eliminated raw materials for shakes. Under these conditions, many cedar roofing producers have curtailed production or shut down. A restriction in supply can only mean one thing— higher prices. Customers from all areas of the continent were eager buyers of the remaining supplies. As mills attempt to supply their customers, prices fluctuate all over the map.

OSB & Plywood

Last week’s seller’s market in OSB didn’t last very long.Californiabuyers backed off, dramatically slowing western Canadian market activity. There was business fromArizona,Nevadaand other states in the U.S. Pacific northwest, but without the massive push fromCalifornia, prices held flat and unchanged from a week ago. Panel specialists expect demand to return in a week or so after buyers have had time to digest last week’s buying spree. Mills report order files that range through and beyond the week of March 11. They are in no mood to reduce asking levels. This week 7/16”Vancouverwas unchanged at C$280.

In centralCanada, the only complaint is slow delivery of plywood from western Canadian suppliers. Plywood mills say they are at full capacity and are doing their best to meet customer demand. Slocan has a more serious problem at their plywood mill, as one of their two presses needs to be replaced and the new one is three or four weeks away in St. Louis, MO. While they are waiting, plywood production is down by 50 per cent.

The OSB business, which is less reliant onCalifornia, remains good. Wholesalers report a strong start to the week with some slowing of activity on Thursday. Everyone in the region is enjoying the mild winter, which has allowed construction to continue without the usual interruptions from snow and cold. Encouraged by order files stretching into the third week of March, OSB mills raised the price of 7/16”Torontoto C$284, up $7.

Cargo & Reload

Stocking wholesalers in theU.S.northeast reported this week that activity started better than it finished. Careful, disciplined buying continues among their customers. There is no hurry to buy. Mild winter weather has not enticed retailers to build inventory. Many expect lower prices before serious spring buying begins and are prepared to wait. Mostly mixed truck and highly specified sales were not disappointing for February.

Source:U.S.Census Bureau

In addition to the Presidents Day holiday, this week also included a midwinter break for some schools in the northeast. More than a few of those involved in wholesale and retail lumber distribution chose to take some time off. Selling prices for green fir narrows were slightly softer this week, while wides firmed. One wholesaler reported 2×10 was getting scarce. Tightening supplies allowed some green hemlock prices to move higher.

Refer to Madison’s Lumber Reporter for the latest news in the lumber industry.

 


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Canadian Lumber Prices Down Amongst Industry Producers

Volume 52 No. 7, February 15, 2002

A Dichotomy of Purposes

Last week, I received an assignment from another publication to do an interview with a small contract logger in Washington State. I phoned the fellow up and went through my list of questions. My list included why he was buying the particular piece of new equipment, how it was going to fit it into his system, and what it would do for his operation and his business.

I have done hundreds of these interviews and I always find that once the formal part of the interview is over, the person invariably relaxes and is often willing to talk about other aspects of the industry. The time his guard is down is often short, however, so I have to be quick with the questions.

I started off by asking him how the logging industry was doing in his area. He said with housing starts remaining strong through the winter season, most of the loggers were doing okay. In fact, by scaring up some private wood during the off-season, he was able to work right through last year. I assumed that accounted for his decision to buy the new equipment.

In a natural progression of the conversation, he explained that everyone was waiting to see what happens regarding the tariff on Canadian softwood lumber. I then asked him how he personally felt about the tariff, but he avoided expressing an opinion. Instead he went right to the nub of the problem, which for him at least, was the import of Canadian logs. It was obviously a touchy subject, as his voice became quite agitated.

Just in the last two years, he said, they’re sending whole logs down here, just load after load of ‘em. Evidently, since you Canadians up there can’t get the boards down, now you can get the logs down. I responded that most of the logs going south from B.C. are off private land and that it was difficult to control what companies did with their own timber. “That’s what they say,” was his response, “but I’m telling you, they’re hauling ‘em hundreds of miles.”

Calming down a bit, he continued: “There doesn’t seem to be anything we can do about it. It’s big business and they do what they want.” Trying to drive the point home, I reiterated the part about the logs coming from private property, but he wasn’t buying it. “Oh, they can send Crown logs down too,” he retorted. “All they have to do is have a mill say they don’t want ‘em and down they come.” I explained that to export Crown timber there had to be three refusals, but he paid little mind to the technical details. “If they can’t get an export permit through the usual channels, all they have to do is run them through a debarker and say that they are partly manufactured inCanada. We see lots of them coming down this way,” he summarized.

I tried to entice him to further comment by saying that this must pee off the loggers, but he immediately slipped into a conciliatory mode. “The way I look at it is that you guys got to make a living too, and you’re our neighbors. I do a lot of business up inCanadaincluding buying supplies and equipment there. Then he drifted off to the benefits of shopping inCanadadue to the dollar exchange rate.

My point in reiterating this conversation is that there is another aspect to this Canada-U.S. lumber trade dispute that never gets mentioned. Through all the negotiating, proposals, counterproposals, meetings, arguing back and forth, political spinning, and all this haranguing, never is anything mentioned about the impact the deal might have on American loggers.

As I perceive it, a majorU.S.objective this time is a significant increase in the exportable log volume available from

Canada. B.C. has offered up to 13 per cent of its log volume, but as we all know, the U.S. Coalition for Fair Lumber Imports is holding out for much more. Actually, judging by the way negotiations have gone so far, it’s hard not to conclude that the Coalition isn’t in favor of a deal of any kind. They certainly aren’t making things easy.

Should the American lumber lobby get its way and more Canadian logs start heading south, theU.S.logging sector is certain to feel the bite. Logs in theU.S.are often sold at auction and when lumber prices are high, bid prices can skyrocket. We’ve all heard stories of bidding wars where the timber was sold at such a high price, the successful bidder couldn’t afford to log it. There’s also the scenario that by the time the logger got his roads built and into the area to start logging, lumber prices had fallen and he was again left holding the proverbial bag.

Without such competitive bidding for timber, Canadian operations haven’t experienced these problems, but that may change in the future. Should we go to a competitive bidding system, there is every likelihood our loggers, particularly the small, independent ones, will be in exactly the same jeopardy as their American counterparts when it comes to acquiring timber and making a living.

Should the powerfulU.S.lumber lobby achieve its objectives and gain access to Canadian timber, in addition to the potential havoc it will visit on the Canadian forest industry, American independent loggers will also feel the cut. You can be sure they will be cursing every Canadian log that arrives there because it will be doing them out of a job and a way of life. This time, the softwood lumber dispute really is creating a dichotomy of purposes.

U.S. Says No

In a news release issued this week by the Coalition for Fair Lumber Imports, the U.S. lumber industry says the only way the softwood lumber dispute can be settled is if a large majority of provincial timber is put up for auction. This effectively slams the door onCanada’s most recent offer for a settlement. As part of the package, B.C., which produces about half the Canadian lumber exported to theU.S., offered to put up 13 per cent of its timber for auction, but the U.S. Coalition for Fair Lumber Imports says the amount is too small for B.C. operators to notice.

Alternatively, the U.S. lumber industry has offered Canada three options: get rid of policies that protect the lumber industry; impose an interim border tax or volume restrictions that eliminate U.S. concerns while a deal is hammered out; or face the full vigor of U.S. laws. TheU.S.lumber lobby has not changed its stance since the last softwood lumber agreement expired nearly a year ago, but now it has been put in writing.

In the meantime, Canadian Minister for International Trade Pierre Pettigrew and Prime Minister Jean Chretien are on a 10 day trade mission toRussia.

Doman Warns

Doman Industries Ltd., one of B.C.’s large coastal lumber producers, says it may be laying off up to 2,000 workers because it doesn’t have the money to post bonding on its lumber shipments to the U.S. Doman says since the U.S. imposed new duties last year, it has put up over $30 million in cash and its coffers are fast drying up. The company is unable to secure additional funding because it has a $1 billion debt load, which means it has been drawing on its working capital.

The U.S. International Trade Commission is expected to make a final determination on the duties in May of this year. The Canadian industry is posting bonds until this determination is made, but following the determination, Canadians will have to ante up. At this point it is estimatedCanadaowes in excess of $1.5 billion, which will be handed out to the offendedU.S.industry under the Byrd Amendment.

C-Housing Jumps

With both sales levels and prices for homes in Canada achieving record highs last year, starts for 2002 are coming out of the gate in a similar vein. Canada Mortgage and Housing Corporation (CMHC) reports that the seasonally adjusted annual rate of housing starts is up 17.3 per cent for January to 204,300 units. This is up from 174,100 units in December.

Multiple starts lead the way with an increase of 39.4 per cent to an annualized rate of 95,200 units, up from the December level of 68,300 units. Urban singles increased 4.0 per cent from 85,700 units in December to 89,100 units in January. The overall annual rate of housing starts for January is currently at the highest level since May 1990.

At 1,786 units, actual rental housing starts in January were the highest since November 1993.Ontario,Quebec, andAlbertawere the most active, while rental construction in B.C. andNova Scotiawas less active. CMHC attributes the overall positive results in Canadian housing activity to mild winter weather and tight resale and rental markets in many metropolitan areas.

New Operation

Jackpine Forest Products of Williams Lake, B.C., has opened a new 23,000 square foot remanufacturing facility there. The new plant can produce up to 235 million board feet of product a year and when in full operation, will employ 40 new workers. In conjunction with the opening ceremonies, President and CEO Gian Singh Sandhu announced his company has also been granted ISO certification for quality management and environmental management systems.

International Paper Sells

International Paper has announced it has signed a letter of intent to sell its OSB facilities to Nexfor Inc., one ofNorth America’s leading OSB producers. Two facilities are located in Jefferson andNacogdoches,Texas, and a third inCordele,Georgia. Approximately 456 employees are affected. The proposed sales do not affect the company’s remaining facilities in its Panels & Engineered Wood business.

Pulp Down

Prices are slipping downward on pulp. The benchmark has fallen nearly $5 to US$452.30 per ton. The range is between US$450 and US$460 per ton, with most sales at the lower end.

WSPF Lovable

Deals were hotter than a Valentine’s date as everybody jumped into this midwinter market. AlthoughCaliforniawas holding off for a break in the weather, much of the continent was enjoying unseasonably pleasant conditions. This made for thoughts of spring. Buyers from all market segments were represented in the surge. Prices took a wild swing upward as many producers sold out. Order files were as long as most mills were willing to go—about two to three weeks.

Prices of KD R/L Std&Btr 2×4 gained $23 to $268. In KD R/L #2&Btr, 2×4 spiked up $20 to $270; 2×6 caught a $26 wave to $266; 2×8 segued up $15 to $245; 2×10 made a $26 leap to $286; and 2×12 grabbed a fiver to end the week at $355.

Studs Smelling Like Roses

Stud producers opined that this week went as smoothly as a thornless red rose. Starting the previous Thursday, sales were very strong. Orders added up to a good three weeks of production. Premium producers were getting approximately $380Chicago(KD WSPF 2×4-92-5/8” PET studs). Middle of the road studs took a handful of confidence from the dimension side and increased prices $20 to $285.

KD Fir Focused

Valentine’s didn’t get much attention this week; everyone was focused on the lumber market. Overall, the feel was surprisingly good for this time of year. It was early for a spring buy, but nobody cared. Customers who held off too long, discovered they were short on inventory. Rather than continue waiting for a bargain buying opportunity, they jumped in. Inquiry was up sharply beginning the previous Friday, and sales volume rapidly increased with follow-through sustained into the end of this week. Trading was a sweetheart deal for mills that pumped up prices, as demand exceeded supply.

Cedar Desirable

It’s nice to be the belle of the ball, especially on Valentine’s Day. Cedar was the most popular product on the board this week. On-ground inventories depleted in previous weeks made customers aware they must commit if they are going to find the products they need when they need them. Producers are booked through the first quarter and are now looking for their second quarter business. Altogether, first quarter totals will be better than expected, comparing very favorably to 2001. Prices are solid on both sides of the border. Unfortunately for Canadian producers hampered by the CVD and anti-dumping penalties,U.S.makers are selling at substantially lower prices.

Cedar Roofing Tight

Supplies were tightening in #1 Perfections shingles, both treated and untreated; prices rose accordingly. Buyers everywhere, exceptCalifornia, participated with enthusiasm. East coast business was the most brisk.

OSB & Plywood

Last Friday, the day after we did our market survey, the OSB market began to heat up. Inspired by heavyCaliforniabuying, it got even hotter this week. Buyers in theGoldenStatesimultaneously noticed two things: first, that their inventories were dangerously low; and second, that OSB prices were not going to decline as anticipated. The result was a rare sellers market. IfCalifornianeeded OSB, buyers nearly everywhere else in theU.S.andCanadadecided they had better buy some too, even if their requirements were not as urgent. OSB producers fought to keep up with customer orders while at the same time revising asking prices. There was even one report fromOntariothat mills were pricing at time of shipment. A new price list every hour or so was not unusual.

In centralCanada, 7/16’Torontomoved up $16 from last week, ending the week at C$277. Mills reported order files well into the week of March 4. In westernCanada, OSB prices didn’t just move up, they jumped. 7/16”Vancouverno longer lags well below central Canadian levels. This week, 7/16”Vancouveris priced at C$280, up $50 from a week ago. Mills report order files nearly through the week of March 4, and they are not listening to counters.

Cargo & Reload

It was mixed week for the lumber market in the northeastern U.S. Stocking wholesalers report decent business but point out that their customers are not jumping on the buying bandwagon as everyone seems to be doing in California. While the weather is still mild, there is always a chance that winter will arrive late and they could be stuck with high priced unsold inventory. Yards are not busy and are continuing to buy for their immediate needs. They are not building inventory. Some were caught unaware and let their inventories shrink while they waited for lower prices, but this week did not generate substantial buying volume.

Selling prices for both green fir and hemlock were firm but little changed from a week ago. Green fir delivered prices from mills in theU.S.west were sharply higher this week, pushed by booming demand fromCalifornia. In most cases, green fir replacement prices are now above selling prices.

Refer to Madison’s Lumber Reporter for the latest news in the lumber industry.

 


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CCA Treated Wood in Canada Lumber Prices

Volume 52 No. 6, February 8, 2002

The Bad Boys List

Whether it’s a wooden deck, a picnic table, fence posts, or utility poles, chances are the wood is pressure treated with chromated copper arsenate or CCA, and right now CCA is on the bad boys list. CCA is applied to wood to prevent rot and insect damage. The problem is that CCA contains arsenic, a known carcinogen that can leach out of the wood into the ground. While some argue it poses a risk to humans who come in contact with it, others aren’t so sure. Pentachlorophenol (penta) is also on the bad boys list because of its dioxin content.

The CCA issue is currently raging in theU.S., where the treated wood industry represents a $4 billion a year business. There is every reason to believe, however, that if CCA is banned in theU.S., it will also be banned inCanada, although the impact would be less significant here, since the volume of treated wood products exported to theU.S. fromCanada is small. Should the U.S. ban CCA, one of the species likely impacted would be southern yellow pine, and that would probably make life even more difficult for Canadian lumber producers.

There are currently no standards for arsenic levels in wood. In the past, both the EPA and the Consumer Products Safety Commission have found CCA treated wood to be safe, although both are currently reviewing this stance, especially in relation to children. TheU.S.senate is demanding the EPA provide it with a report on the dangers of CCA treated wood by February 15.

The CCA issue has been bubbling away for some time, but really started gathering momentum last November, when twoU.S.environmental groups, the Environmental Working Group and the Healthy Building Network, released a study on it. To conduct their study, members of the organizations went to 18 Home Depot and Lowe’s stores in 13 locations and swabbed pressure treated lumber with moist polyester wipes. The wipes were sent to a government certified lab for analysis and the results indicated arsenic levels exceeded allowable levels for drinking water. I’m not sure about the connection to drinking water, but it didn’t seem to matter.

With the results in hand, the two groups concluded that one in 500 children who play on arsenic treated playground equipment and decks around their home can be expected to develop lung cancer or bladder cancer later in life. Admittedly, the scientific method was wanting and the extrapolation questionable, but that was of little consequence to parents who saw pressure treated lumber as a threat to the long term health of their children.

The problem hasn’t reached the same proportions in Canada, but Canadian CCA treaters are watching what is going on in the U.S. Between 1987 and 1990, Health Canada did a study on CCA wood treatment and the impact arsenic-laden pressure treated wood could have on children. The report concluded that the arsenic in CCA did indeed pose a threat and that children should be kept away from it, but HealthCanadadid nothing.

With 66 CCA treating plants, the Canadian pressure treating industry is a $700 million a year business employing 1,800 workers.Ontariois the largest Canadian producer with 18 treatment plants, while B.C. is second with 16 facilities. About 70 per cent of the operations belong to theInstituteofTreated Wood, the Canadian wood treatment association. A ban on CCA in theU.S.isn’t likely to have much impact on the Canadian treating industry, sinceCanadaexports little CCA treated product there.

It’s not that there aren’t alternatives to CCA. The Americans have a product called ACQ, alkaline copper quaternary, and there is also CBA, copper borate azole. In all likelihood, it’s just a matter of time before CCA pressure treated wood is outlawed in theU.S., andCanadais certain to follow.

In response, producers of alternative products are rallying to the cause. The U.S. Plastic Lumber Corp., for instance, which makes components from recycled plastic, says phasing out CCA pressure treated lumber provides an enormous opportunity. USPL says its products are a safe alternative to pressure treated lumber and plastic has no insect or rotting problems. The company currently has three plastic manufacturing and recycling facilities in theU.S.

Hot on the heels of the plastics industry is the B.C. red cedar industry. Hurt by American tariffs on Canadian lumber, the red cedar industry says its products are a natural alternative to pressure treated wood because red cedar contains a natural preservative and is safe to use in any application. This group also sees a potentially expanding market in theU.S.should CCA treated wood be banned. Unfortunately, B.C. red cedar is currently subject toU.S.tariffs, which could impact negatively on any potential market gains.

The possible ban on CCA treated products doesn’t come as a surprise to most in the industry. Support for such a ban has been increasing for some time now and countries such asJapanstopped accepting CCA treated wood several years ago.

But while CCA treated wood may be prohibited for use in some applications, it may not be banned entirely. CCA pressure treatment may still be allowed for some industrial applications such as wharves and utility poles. Approximately half of all utility poles are currently treated with CCA. In these applications, human contact is less likely and since CCA is one of the best and most cost effective preservatives, the incentive to continue using it is strong.

Highs in Housing

The Canadian Real Estate Association reports that both the number of sales and average selling price set new record highs last year, as Canadian housing activity defied the predicted economic downturn. Average selling price hit an all time high of $171,910, with total transactions zooming up to over $65 billion. The activity wasn’t confined to any specific geographic area, but was experienced generally across the country. Sales in the last month alone jumped 14 per cent, or over $6.8 billion, producing the best December on record. Except forManitobaandPrince Edward Island, every province inCanadaset a new December record.

Low mortgage rates and high consumer confidence are being credited for initiating the higher than expected results. The prime rate at many banks is as low as 3.75 per cent, pulling down variable rate mortgages to a 40 year low. With a bit of shopping around, prospective buyers can find five year closed mortgage rates as low as 6.85 per cent.

Sales for 2001 were reported at 380,458 units, an all-time record, compared to the previous record of 335,822 set in 1999. Largest yearly increase in unit sales was inBritish Columbia, where sales jumped 28 per cent over 2000. At $222,984, B.C. also had the highest average house price.

Predictions are for continuing low interest rates this spring, with housing activity continuing at a strong pace. First time buyers are expected to keep on fueling the Canadian housing boom.

Elk Falls Down?

TimberWest Forest Corp. says it may close its Elk Falls sawmill on Vancouver Island unless it can gain more access to theU.S.lumber market and cut labor costs. The company says the plant, which employs approximately 200 workers in the community ofCampbell River, is no longer earning an economic return on capital employed. One of the last large log mills on the B.C. coast,ElkFallsrequires extensive modernization to change from processing large logs to processing second growth logs.

Spokesman for the Communications, Energy and Paperworkers Union Dave Schaub says his organization has a good rapport with the company and is willing to talk about the problem. He says the members realize if the plant is upgraded there will be fewer jobs. He states, however, that if the company attempts to shut down the plant while continuing its export of raw logs to theU.S.there’s going to be a reaction on theIsland. Earlier in the year, TimberWest closed its Youbou sawmill under similar conditions. Youbou was closed despite a provincial requirement that ties Crown timber to a specific processing plant in the area. The B.C. government is currently considering dissolving this tie.

With 344,000 hectares under its management, TimberWest is the largest private landowner in the province. The company has just turned in one of the strongest performances on the B.C. coast for the fourth quarter of last year, due mainly to its log exports. Since 1998, TimberWest has tripled export volumes. Export permits for logs from private land are easier to obtain than for logs from Crown land. The company says it hopes to expand the log export side of its business and be more involved in real estate sales. TimberWest wants to produce wood products only when it can achieve a return on capital employed.

De Jong Sounds Off

Mike de Jong, B.C. forests minister, says the softwood lumber dispute is threatening relations betweenCanadaand theU.S.In a reference to 9-11, de Jong says the Americans have takenCanadafor granted in several ways. “We have some expectations and those expectations don’t include being jerked around in the way that we have on an issue that is of such fundamental importance to us,” de Jong states. He says he will meet with federal international trade minister Pierre Pettigrew and other provincial counterparts to discuss alternatives to a negotiated settlement.

The Americans maintain there is no lack of understanding in what they want. They sayCanadais refusing to deal with theU.S.industry’s requirement of a fully open and competitive timber market or something that accurately mirrors a competitive market.

WSPF Working It Out

The western spruce market gradually worked down to lower prices. As mills responded reluctantly to pressure applied by wholesalers, customers’ counteroffers of $2-$4 were taken more seriously. Early February is usually a flat spot in the market, and this week tracked with history. No end to the sideways grind was in sight, according to traders.

Prices of KD R/L Std&Btr 2×4 stood firm at $245. In KD R/L #2&Btr, 2×4 lost $12 to $250; 2×6 held at $240; 2×8 erased $10 to $230; 2×10 was cemented in place at $260; and 2×12 was the only gainer with a $10 increase to $350.

Studs Short

Stud producers sold little of their bread and butter products, but odds and ends went well by comparison. Prices of premium studs were relatively flat compared to those of the previous week. Order files remained at the week of February 18, having added few orders. Truck transportation toAlbertaand eastern locations was problematic as over-the-road equipment was hard to source.

ESPF Fast and Firm

The eastern spruce market was fast and firm all week. New orders came in steadily and prices held at levels established in the previous week. Order files remained in the range of two weeks.

MSR Stabilizing

Decent business kept MSR producers at their desks, but not sweating. Prices stabilized as supply balanced with demand. Business was best in the four-inch dimension. Order files stayed at two weeks.

Cedar Gripping

Business was gripping, not griping, in cedar. Customers came in for a round of buying to pick off everything that was available on the ground at the mills. A spate of forward orders that extended deliveries well into the second quarter kept traders hopping. Prices on radius edge decking felt upward pressure from scarcity. However, published price lists remained firm at established levels.

Weyerhaeuser re-configured production at the mills that are picking up the lines dropped by the closure of Canadian White Pine.

KD Fir Lethargic

Blustery weather across the country took the bloom off the cheeks of fir traders. What had been an early spring market fizzled. Buying dropped off to a hit-and-miss proposition. Prices trended downward by $5-$10 across the board.

OSB & Plywood

Central Canadawas not asked to endure snow, sleet and frozen rain as was the situation a week ago. The return to plain old cold weather did not inspire improved activity in the panel market. Slower paced construction gave producers a chance to catch up on deliveries. Distributors have enough stock to get them through the next two weeks and have reduced their panel purchases. Prices are flat this week with 7/16”Torontounchanged at C$261. Mill order files are nearly through the week of February 18, and unless order files begin shrinking, mills are expected to try and hold prices.

In westernCanada, it was another quiet week. There was a lot of tire kicking, but not much buying.WashingtonStatebuyers expressed some interest, but demand from other westernU.S.states was muted. 7/16”Vancouverattracted interest this week at $230, down $10 from a week ago. Order files are through the week of February 18 and are well into the week of February 25 at some mills.

Cargo & Reload

The weather is cold and wet in theU.S.northeast. Lumber buyers took a quick look at the calendar, noticed it was the middle of winter, and put their order books back in the desk drawer. During our market survey, stocking wholesalers’ biggest challenge was trying to think of different ways to say it was a slow week. All agreed the competition was intense, as they fought to squeeze some business from customers who had decided they had enough stock and didn’t need much lumber right now. A wide range of green fir selling prices was offered, but customers refused to respond and weekly sales totals declined.

Fir mills in theU.S.west found their order files had all but disappeared and adjusted asking prices.Californiashowed enough interest in green fir narrows to encourage mills to raise 2×4 green fir delivered prices by $5, but most business with northeastern buyers was done on counters and was small in volume.

Refer to Madison’s Lumber Reporter for the latest news in the lumber industry.

 


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Home Lumber Wholesalers Sales Prices

Volume 52 No. 5, February 1, 2002

A Reflection of the Facts

With the new year barely underway, predictions on the forthcoming performance of the economy are emanating forth like meteor showers on a hot August night. One headliner after another makes its brief appearance at the podium, then in true meteoric fashion, fizzles into oblivion in a dwindling streak of light. Such annual predictions are particularly apparent now because forest companies are reporting their fourth quarter, and in many cases, annual financial earnings and the results are neither favorable nor optimistic.

The most pressing issue is a solution to the Canada-U.S. lumber trade dispute and, depending on the individual situation, progress is either nonexistent or retrograde. The players seem divided into three camps: the overly optimistic that want to fight at the WTO and decide what to do once a decision is rendered there—a decision they feel will favor Canada and give the Canadian side more clout; the pie-in-the-sky group that wants completely unfettered free trade and hopes not to pay anything; and the hang-dog group that has already accepted the inevitable and just wants the penitence finalized so they can get on with it.

Of the three, I side with the hang-doggers. We’ve been to the WTO before and won before, but it didn’t make any difference then and I can’t believe it will make a difference now. Subscribers to the pie-in-the-sky group are living in a dream world if they believe they can win on the basis of free trade alone. That isn’t going to happen. The Americans are big, overbearing trade protectionist bullies, and with the size of the lumber trade bee they’ve got in their bonnet this go-around, there isn’t a snowball’s chance in hell they’ll acquiesce. Free trade? Phooey! That leaves just the hang-doggers whom I believe are the realists.

As ridiculous as this sounds, we might as well accept the fact that the Americans are going to make us pay to sell our lumber there, and until we find an alternative market elsewhere, we’d better just put on the best smile we can muster and pay up. Naturally that’s under the caveat that we can ever meet their terms—which are getting more far fetched and ridiculous all the time.

Were the lumber trade issue the only difficulty confronting the forest industry, a return to better times might still be within our grasp, but unfortunately, it isn’t. There is still too much lumber floating around and that situation, in addition to a few other factors, is keeping lumber prices in the toilet. With low lumber prices comes low profits, and this reality is being reflected in company financial reports across the country. Producers everywhere are having to face up to the same problem, but it is probably more apparent on the B.C. coast.

With profits having been down over the last several years, operators have been reluctant to spend money upgrading their conversion facilities. It’s hard to justify investing in new equipment when simply meeting the fixed costs takes all the money you can make. Unfortunately, that deferral option has just about run its course. No doubt coastal operators were hoping the Japanese market would make a miraculous comeback, or their situation would somehow improve before they had to start laying out big capital for big plant revisions, but neither condition has come about.

With no coin in their pockets and fiscal prospects not overly optimistic under the

best of scenarios, coastal companies are in for tough negotiations with their lenders. Tired iron has no vale to a banker. In this situation, the boys will be separated from the men and likely more coastal mills will either go the way of the Dodo, or be picked clean by the buzzards who wait patiently for the carcass to drop. Regardless of their financial situation, not a few coastal mills will have to retool if they expect to still be in the game a couple of years from now.

Anyone can be pessimistic, but the trick is to find that odd bright spot amid the doom and gloom and, fortunately, there are a few such prospects that fall into this category.

For instance, the economy is on the improvement list. Every time we get statistics on economic performance, the results are better than expected. If we could just get rid of all those damn economists, the world would be a better place. I’m convinced every economist has as his main objective in life, a deep seated desire to create negative self-fulfilling prophecies, but this time at least, it didn’t work. Housing starts are stronger than expected; new home sales have just set a record for the year. The economy is rallying despite all the dire predictions.

There are other favorable indications as well, but the housing sector is the life blood of the forest industry and any positive news is greeted warmly. This reaction is not without good reason, since housing is one of the main forces that lead both the industry and the economy. In addition, financial results on both sides of the border are pointing to a shorter than expected economic downturn in favor of more optimistic predictions. This time, Pop didn’t abandon his lemonade stand, he didn’t listen to his educated son, he kept on selling his lemonade, and the predicted disaster was averted. Damn the economists—full speed ahead. (Be sure to see next week’s Letters to the Editor.)

Another reason for optimism—in B.C. at least—are forthcoming changes to the provincial stumpage system. If ever there was a contentious issue, stumpage is it, but hopefully this time we can rid ourselves of some of the warts. The B.C. government is promising a more market based system and while I’m sure the changes won’t resolve all the problems, there is optimism they will at least make the system more workable.

If I haven’t convinced you already, let me say clearly that I’m an optimist at heart. Not only because there is nothing to be gained by wallowing in self pity, but also because it’s extremely difficult to make advancements while in a state of depression. Of all the tools we humans utilize to move ourselves forward, a positive mental attitude is surely the most effective. There’s no question the industry will pull out of this morass. Times will get better again; coastal mills will upgrade. We’ve all got to hold onto these thoughts. Of course there will be changes—there are always those, but we will pick up the pieces and get back in the race, because there isn’t any alternative.

New Home Sales Up

Despite theU.S.recession, the commerce department reports December new home sales rose 5.7 per cent to post a record for the year. Seasonally adjusted figures pegged new home sales at 946,000 for December, compared to 895,000 in November. With a December forecast of 925,000 units, actual sales were ahead of expectations.

A 35.1 per cent increase experienced in the West accounted for the entire gain. New home sales fell 9.6 per cent in theMidwest, 1.4 per cent in the Northeast, and 1.1 per cent in the South.

New home sales for the entire year 2001 were 900,000 units, compared to 877,000 units for 2000—a 2.6 per cent increase. The 900,000 sales figure is the highest level since the commerce department began gathering statistical housing data in 1963. Sales in 2001 surpass the previous high of 886,000 units achieved in 1998.

Despite last year’s downturn in theU.S.economy, new home sales have remained strong. This is attributed to low interest rates and lack of inventory. The Federal Reserve cut interest rates 11 times last year, but at the last meeting, rates were not adjusted further. This has led to speculation theU.S.economy has turned the corner and is on the road to recovery.

Old Home Sales Up

The National Association of Realtors (NAR) says that although sales of existing homes in theU.S.dropped 0.8 per cent in December to 5.19 million down from 5.23 million annually in November, aggregate sales for 2001 were up 2.7 per cent over those of 2000, setting a new record. Projections for December were pegged at 5.18 million units. At an annualized rate of 5.25 million units, sales of existing homes in 2001 exceeded the previous record of 5.21 million annualized rate set in 1999.

With mortgage rates at historically low levels, NAR expects future activity in the housing market will continue at or near present levels. This week, the national average for a 30 year, fixed rate mortgage rose to 6.96 per cent, up from 6.83 per cent the previous week. The inventory of homes for sale fell from 4.8 months in November to 4.2 months in December. Median price of a home increased in December to US$151,400 from November’s US$147,100.

Pulp Static

While pulp prices fluctuate up and down slightly, it is generally selling in the range of US$450-465 per tonne. The benchmark price declined US$3.75 to US$461.95 per tonne.

WSPF Party is Over

After a good run of several weeks, the party ended for western spruce. Inquiry dropped to the lowest levels since the holidays and wholesalers found them-by Zara Heartwood selves holding the bag. Mills pulled back to regroup; moved prices up slightly to establish new floor levels; then refused to budge. Meanwhile wholesalers unloaded at reduced prices, which undermined any sales the mills had lined up. Sharp pencils rule in a two tier market and this week the secondaries ran the show.

Based on the wholesale level where sales were actually happening, and not quoted levels where few sales took place, KD R/L Std&Btr 2×4 slid off $3 to $245. In KD R/L #2&Btr, 2×4 gained $2 to $262; 2×6 drifted down $1 to $240; 2×8 subtracted $3 to $240; 2×10 held at $260; and 2×12 slapped on $7 to $340.

Studs Settle Down

Traders saw the end of a six week run of decent sales in studs. Overall, the tone was positive, but the volume of new orders was minimal. Order files were into the week of February 18. Prices on KD 2×4-92-5/8” PET studs peeled off $10 to $245. Truck transportation slowly recovered from the dearth of northbound trucks after the holidays. Shipping to theU.S.andAlbertaresumed a normal pace.

ESPF Whispers

Whispers were easily heard across trading rooms in eastern spruce. Wholesalers trounced producers on price. All was quiet and few sales were made at the mills. Prices remained firm in light of three-week order files.

MSR Meager

Truss manufacturers formed the bulk of the buyers for MSR, although they were a meager lot. The week ended with a smaller total than in the past several weeks. Order files were into the range of two weeks.

Cedar Depleted

On-hand inventories remain depleted at the mills. Popular products are almost non-existent; decking, timbers, pattern stocks, are all hard to source. Prompt deliveries are unheard of except on S1S2E boards. The incredible beginning-of-the-year spurt has now tapered off. Prices are flat with no give in either direction. New orders for most items are now scheduled for delivery into March and the second quarter.

KD Fir Digesting

Orders jumped up for a hard buy in the previous two weeks. This week, however, wholesalers needed to unload. Prices at the mills remained within a few dollars of the previous week, in spite of pressure from second tier sellers. All took a wait-and-see attitude.

OSB & Plywood

Late Thursday, winter arrived in centralCanada. Temperatures weren’t that low, but the snow and frozen rain was enough to persuade some panel wholesalers to close their offices early and head for home. The arrival of winter weather was too late to slow construction activity and too late to stop another increase in OSB prices. OSB producers report that order files have stretched to over three weeks. Producer shipments are still late and there is little on-ground inventory. Panel wholesalers see little chance that demand will slow unless there is an extended period of cold and snow. This week 7/16”Torontosold for C$261, up $7 from a week ago.

It was a quiet week in westernCanada, with cold temperatures inAlbertaand wet snow in the B.C. lower mainland. Wholesalers have been buying steadily during the past several weeks and it is now time to digest the inventory build-up and assess how the market is going to behave between now and spring. 7/16”Vancouveris priced this week at C$240—unchanged from last week. Order files are reported to be into the week of February 18. Plywood is still scarce, particularly in the strong central Canadian region. Sheathing prices are higher for both fir and CSP.

Cargo & Reload

The mood at last week’s NRLA convention was upbeat enough to convince some buyers in the U.S. northeast that when they got back to work on Monday, they had better buy some lumber. Not all wholesalers benefited from the buyer enthusiasm, but Monday was the best business day of the week. There has still been no winter, say traders. After hitting 70 degrees Fahrenheit early in the week, temperatures began to fall, but nowhere low enough to discourage buyers. As reported last week, most of the business comes from smaller yards. Large buyers aren’t active. They still have inventory and are watching mill prices to see if there will be further price reductions.

West coast fir mills backed off their green fir delivered prices this week because of declining sales toCalifornia, but direct car sales to the northeast continue to languish. Selling prices for green fir were in a wider range this week, but were generally little changed from a week ago. Stocking wholesalers don’t see much upside for prices until near the end of February. Cautious buyers expect more cold weather and lower prices.

Refer to Madison’s Lumber Reporter for the latest news in the lumber industry.

 


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Canadian Lumber Mill Prices of Wood Producers

Volume 51 No. 14, April 6, 2001

A Spot of Empathy – Part Two

Last week in Part One, I and my compassman had just been invited to supper at a bush mill—a mill whose fate we were in the process of sealing. This week we pick up on the story just as we arrive for the evening.

The door of the rough lumber shack was open as we drove into the yard, parked, and got out of the pickup. The mill owner stood in the doorway calling out a welcome and beckoning us to come in. Once inside, he introduced us to his three sons and a woman—his daughter—whom he said was the log scaler for the company. After a round of drinks which put everyone at ease and set the mood for the meal, we sat down at the home-made table heaped with steamy, hot food. Hard work and hearty appetites go together in the woods and the food quickly disappeared. Later, over hot, black coffee, we discussed forestry, sawmilling, the market, and, of course, the pulp mill invasion. The conversation eventually drifted to subjects other than business, and our host explained his family liked to shoot. He proudly brought out several custom-made Weatherby rifles for us to examine. In a couple of hours, stifled yawns implied the evening was over and we returned to our fly camp filled with warm feelings for these salt-of-the-earth people and more guilt than before.

In the following days, as we went about our work, we would occasionally hear the mill stop, then a half dozen sharp reports from a rifle. We speculated someone at the mill had bet that he or she could hit the bull’s-eye on the target they had set up and the others had taken up the challenge.

Later that fall, we started planning our first logging operations in the area. I purposely avoided tracking the family, but a year or so later, I heard they had moved to another area. It wasn’t difficult to imagine what awaited them there. They were running but without a place to hide, their fate already determined.

At that time, an estimated 300 small bush mill operations were located within a 100 mile radius ofPrince George, but they didn’t last long once the big companies moved in. Three years later, in 1967, the B.C. government came in with a new requirement that wiped them all out overnight. The Minister of Forests declared the pulpmills could no longer chip roundwood and that all chip furnish had to come from sawmill waste. That meant every sawmill in the area put in a chipper and that was the end of the bush mills. A chipper installation at that time cost $250,000 to $300,000, and no family operation had that kind of cash or credit. It was like someone had thrown a giant switch that powered all the circular headrigs in the north. Unable to compete and unable to make the transition, operators all over cut their last log, shut down their plants, and walked away into history. It was the end to a way of life.

The situation inPrince Georgein the early 1960s is analogous to the situation in the southeasternU.S.today. This area is dappled with inefficient and technologically outdated family operations that are not able to compete. These factors in themselves are

sufficient to herald the demise of these operations, but there are two additional hurdles that guarantee those mills will not endure: they have to buy their log stocks from private landowners, and they are processing southern yellow pine.

Depending on private landowners for logs is a guarantee wood will never be cheap. Let’s say I own a plot of private timber. My objective is to maximize the value of my wood and I’ll do whatever it takes to get there. I’ll sell only to the highest bidder, for instance, and when lumber goes down and the mills start complaining about my log prices, I’ll tell them to blow off. Instead, I’ll sit on my timber until the price goes up again, and while I’m awaiting that blessed event, I’ll relish the fact that the longer my trees stand there, the more meat they put on, and the more they’ll be worth when I finally do sell them.

There is no end to this cycle. With timber owners under no obligation to respond to lumber market declines, this situation will never change.

The second constraint in the southeast is the species. Southern yellow pine (SYP) isn’t the lumber of choice for home building when Canadian SPF is available. Given the choice, any builder with his head screwed on right will choose Canadian SPF every time. It’s light, easy to handle, easy to nail, and when put into a wall, it remains a wall. You don’t stand there watching it warp and twist itself into a pretzel as NMDQ southern yellow pine is want to do. (For those unfamiliar with the term, that’s nail-me-down-quick.)

Even if Canadian SPF is higher in price, builders are likely to choose it over SYP, on the basis of customer satisfaction alone. Don’t forget, lumber is a relatively small cost component in the total cost of a home, so what’s a few dollars more, considering the superiority and ease of working with SPF? No matter how you look at it, the southeast has the deck stacked against it in the competition department.

Significant though they may be, these factors have little overall impact on the current lumber trade dispute, since there is a mightier force at work here—jobs. This time, this lumber trade dispute has become 100 per cent political, and if ever there was an omnipotent political button, jobs is it. Mention jobs to a politician and he/she will move mountains and swim oceans—even if there’s but a single job to be created in the process.

Jobs on theU.S.side of the border are justification enough for a trade dispute, but this time it’s jobs on both sides of the border. Inefficient, family-owned SYP operations that haven’t a snowball’s chance in hell of competing, are shrieking jobs andU.S.politicians are listening. Canadian mills, efficient to a fault, feeding off a government-owned wood supply, putting a superior product into the marketplace at a lower cost than locally produced lumber, are also screaming jobs—particularly should theU.S.impose choking import restrictions.

Caught smack in the middle is the Bush Administration. Should it restrict the flow of excellent, low cost, Canadian SPF in favor of the dastardly SYP? Should it move to perpetuate family-owned, inefficient, SYP operations that will never be competitive? Should the Bush Administration allow theU.S.construction industry to build better, cheaper homes for first time buyers, the aged, and those with low incomes? Or should it give in to the retail lobby and the free traders and go for unrestricted imports of Canadian SPF?

This dilemma is not unlike that of the Canadian agricultural industry in reverse. Every year, income for many farmers is made up in greater and greater percentages of government subsidy. A recent report on the CBC indicated that within the next few years, subsidies will account for the majority of many farmers’ income. The Canadian farm industry is fast becoming uncompetitive. Does that mean we sacrifice our Canadian farmers for low cost products coming up from the U.S? It’s a dilemma, isn’t it?

I don’t sympathize with southeasternU.S.lumber producers because of the contemptible tactics they are employing in opposing Canadian lumber and the manner in which they are manipulating the political system to achieve their objectives, but in light of what happened to the northern B.C. bush mills, I can empathize with them. I understand what it’s like to come to the end of your string—to have no alternatives, no prospects, no future. But no matter what happens this time, or the next time, or the time after that, the small, inefficient SYP operations are gone goslings. Like my bush mill friends, they are bound for the annals of history.

It’s a sad commentary when a way of life accedes to progress. We humans are uniquely innovative and adaptable, but sometimes there’s no avoiding reality. Should theU.S.government decide in favor of the southeasternU.S.industry—a highly plausible prospect—the inevitable is merely delayed. Inefficiency and non-competitiveness can be perpetuated up to a point, but economic reality must eventually prevail.

Chips finally did in those northern bush mill operators and chips may also be the undoing of the small SYP operations. Southeastern forest plot owners can begin collecting chip revenues in about 15 years, compared to 25 years for lumber revenues. It’s a good bet two crops of pulp will be worth more than one crop of lumber over the same 30 year period. That makes it a pretty simple decision.

I wouldn’t be surprised, however, if the problem isn’t strictly academic anyway, since, with all the fuss over his trees, the land owner might instead decide to sell his land to a housing developer and take early retirement—a prospect eminently more appealing than supplying logs to a family owned SYP mill.

U.S. Floods Market

With lumber exports from B.C.,Alberta,Ontario, andQuebecregulated over the last five years by the Softwood Lumber Agreement (SLA), the U.S. South and West, along with the Canadian Maritimes, took advantage of the situation to increase lumber output, says a study by Doug Smyth, director of research for IWA Canada. According to Smyth, lumber exports from the four provinces controlled by theSLAfell by 1.2 billion board feet from 1995 to 2000. During that same period, however, production from the U.S. South increased by 1.9 billion board feet, the U.S. West increased production by 1.8 billion board feet, while the Canadian Maritime provinces tallied up an additional 1.2 billion board feet. Smyth says it is clear theU.S.industry and the Maritimes took advantage of theSLAto flood the market.

The intent of the SLA was to restrict Canadian lumber flowing into theU.S.to keep lumber prices high, but that hasn’t worked. Lumber prices have hovered near record lows for months, due mainly to an oversupplied market. Lumber prices are 20 per cent below where they were in 1996, Smyth reports.

According to Smyth, 73 per cent of the demand increase was met byU.S.mills, while the Canadian Maritime andPrairie provinces, along with a small portion of offshore imports, met the rest. He attributes much of the increasedU.S.production to logs imported from B.C. The log imports were the result of lumber export restrictions imposed by theSLA, and the collapse of the Japanese housing market, says Smyth. TimberWest and Weyerhaeuser, who have significant private timber holdings, are cited as the main log exporters.

Madison’s expects to publish an abridged version of Smyth’s entire report once it is available. All subscribers will receive a copy free of charge.

Bowater Buys Alliance

In a $1.2 billion deal, Bowater Inc., third largest newsprint company in the world, has announced it has purchased Alliance Forest Products Inc., one ofCanada’s last remaining independent paper producers. Bowater will addAlliance’s higher value and specialty paper products to its coated groundwood papers and newsprint. Bowater expects to be one of the world’s leading producers of specialty grade papers by the end of 2002.

WSPF As Usual

The unusual characteristic this week was the lack of anything unusual. Everything ran smoothly, like any other week in spring. Thanks to warm weather, good housing starts and permits, and low interest rates, spring buying increased substantially from the previous week. In this duty-free period between the previous softwood lumber agreement and its undetermined successor, no one took advantage of the situation by ramming as much wood through the border as trucks and rail cars could haul.

Contrary to rumors from theU.S.side, there was no wall of Canadian wood poised behind the quota barrier. This mythical behemoth was expected to roar over the border after the March 31SLAdeath knell, but that didn’t happen. Wood stashed in a ‘load and hold’ pattern as producers ran out of quota at the end of March, was pre-sold—not waiting to be pushed over the border on April 1.

While American special interest groups ran to their representatives to propose a 40 per cent countervail duty and a 40 per cent anti-dumping penalty against Canadian lumber, producers north of the border conducted business as usual. They took orders, filled rail cars and trucks, and sent them on their way to customers.

The anti-dumping penalty is expected to apply to shipments 15 per cent or more above the normal cross border flow, as established in the last year of the old quota agreement. Canadian WSPF producers were quick to point out, however, that the production capacity to generate that volume of wood does not exist, even if producers are inclined to take a chance on shipping now and paying the penalty later.

Prices on KD R/L Std&Btr 2×4 blipped upward $5 to $220 in decent sales from the mill level. On KD R/L #2&Btr, 2×6 gained $11 to $206; 2×8 hefted upward $13 to $208; 2×10 stuck on $6 to $260. The only holdout was 2×12, which held pat at $320. Order files were into the first of the week of April 16, approximately two weeks at most mills.

Studs Convened

It was annual convention time inPrince George, B.C. for the NFPA (Northern Forest Products Association). A mood of uncertainty prevailed over the affair, as delegates toured local mills and discussed the softwood lumber issue. Those left on the trading floor were busy taking calls and filling orders. After several weeks of light activity, a return to normal was welcome. Late in the week, sales of commodity studs were particularly good, and order files grew into the three-week range. Other decent sellers were one-inch items, 2×3, and finger joint studs.

MSR Quoting

The phones were ringing and traders were kept busy generating quotes on new MSR orders. Customers were tentative on the duty question, but they needed wood to satisfy immediate needs. Business prospects in MSR look good this spring.

Shingles Even All

Activity in shingles and shakes was measurable this week.Californiacustomers were eager for treated cedar roofing materials. Shingles were selling well into the southwest andChicagofor repairing last fall’s hail damage. Prices are steady, with #2s experiencing upward pressure. There are no problems with transportation. Spring replacement logs are still too expensive for many shake and shingle makers to re-open.

Cedar Unruffled

Cedar producers are confident the next softwood lumber trade arrangement will not be as worrisome as customers fear. Many are willing to designate ‘duty for mill account’ and assume any risk themselves. Mills throughout the cedar industry are on a reduced output schedule. Certain items are in short supply, particularly longer lengths and some larger timbers. Sales are good and customers are paying quoted prices on most products. Price increases to cover an anticipated duty could drive away customers or undermine product loyalty.

OSB & Plywood

Along with sunny weather and melting snow in centralCanadathis week, there was even more good news. The drywallers are expected to settle, which meansToronto’s labor problems are looking less serious. Drywallers are the most militant group in the building trades, and if they settle quickly, the construction season could be off to a strike-free start.

OSB activity was stronger toward the end of the week with strong out-turn, although prices were off a little from a week ago. 7/16”Torontowas selling at C$205, down $5. Order files are through the week of April 16 and into the week of April 23.

In westernCanada, activity also improved. There was some local buying inVancouver’s lower mainland, as wholesalers finally began replenishing depleted stocks.Albertaalso reported good inquiry.Californiawas buying in volume, andSeattlewas also doing some business. 7/16”Vancouversold for C$210, coinciding nicely with newly revised producer asking levels. Wholesalers say volume deals could be made for $5 less.

Cargo & Reload

Although weather in theU.S.northeast was warm and sunny for the first time this year, the lumber business didn’t reflect the upturn, as contractors waited for job sites to dry out. Retail yards held off buying in volume, in anticipation of a price decline that didn’t happen. While the mood was better, the real problem was uncertainty. How much stock do buyers have left? When will they begin buying for the coming construction season? What will happen after April 23, when Canadian lumber could be hit with a retroactive but unknown tariff? How much might the tariff be? And, most importantly, how much will Canadian lumber prices go up to cover the tariff? According to one veteran trader, if the warm weather continues, the crunch should begin in about a week. At that time, inventories will be down to the point where buying can no longer be postponed.

This week, selling prices for green fir and hemlock moved sideways for everything but fir 2×8, which managed a $5 gain. Traders don’t expect lower prices will bring more business. It’s a waiting game for now.

Announcements

Cascades Inc. ofKingsey Falls,Quebechas named Michel Desbiens, former Donohue Inc. president and CEO, to its board of directors. Also named to the Cascades’ board is Laurent Verreault, president and CEO of Societe Groupe Laperriere & Verreault Inc., a forest industry supply company. Cascades is undergoing financial restructuring and wants more independent directors on its board.

Refer to Madison’s Lumber Reporter for the latest news in the lumber industry.

 


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Timber Lumber Market Prices on Sale this Week

Volume 51 No. 17, April 27, 2001

Anteing Up the Stink Bid

When I first began working in the woods in the early 1960s, the old sealed tender timber sale auctions were still in effect. I’m sure somebody will remind me some of B.C.’s small business wood is still distributed this way today, but most timber now is allocated by allowable annual cut rather than by public tender. This is a constant source of annoyance to our eager beaver American friends, who would like nothing better than seeing this province auction off its timber to the highest bidder—them included. In my mind’s eye, I can see a car full of gloating American sawmillers, their pockets full of Yankee dollars, heading up to B.C. to out-bid us for our own timber. With the exchange rate we have now, you can bet our best timber would be heading south to Yankee saws.

At first I didn’t fully understand the significance of timber sale auctions, but I was eager to soak up knowledge about the industry— especially where timber acquisition was concerned. I found it intriguing that even though the company didn’t always bid on every timber sale that came up—because of location, or the type of timber in the sale, or simply because we didn’t need the wood at the time—there was always lively discussion about the events. I quickly learned that knowing what went on at these timber sale auctions was essential preparation for the next time we were at the table, and with that knowledge, I became an eager participant in the discussions.

Although our investigations were completely unstructured, analyzing a timber sale auction was usually a two phase process: a pre-event speculation, then a postmortem analysis. The first phase invariably began with a discussion of the physical aspects of the sale,

such as access, how much road had to be built, how much blasting was needed, and how much gravel had to be hauled. This was followed by a discussion of the logging conditions on the sale itself: the ground, whether it was steep and rocky or wet and flat, yarding deflection, and the possibility of obstacles such as rocky outcroppings that might interfere with logging. Next, we would discuss the species mix on the sale, assess the volume of Douglas fir and cedar, then estimate yield and quality of the wood. This analysis was based on who knew what about the area, and, strange as it may seem, we frequently knew quite a bit. There are no secrets in this business, you know.

Having worked through the physical attributes of the site and the characteristics of the timber, we were mid way through the analysis process, but there was still the most important aspect to assess—the politics. This was where we speculated on who the bidders might be, the amounts of the various bids, who was expected to win, and how much he would have to pay. This was the most interesting part of the discussion since it concerned not only cost estimations, but also the dynamics of the process and the relationship between them.

Once the event was over and we knew who had won and what every body had bid, we took on the postmortem analysis. These discussions usually started off with a detailed description of events from the staff member who attended the auction. He provided a blow by blow account, describing in explicit detail the tenor of the auction and even the expressions on various people’s faces as each sealed tender was opened. During this chronicle, we all chimed in spontaneously with appropriate guffaws, kudos, or criticisms, depending on which of us had speculated correctly or had missed the mark completely.

In conclusion, we invariably pondered the posterity of the successful bidder, opining either that he was going to lose money big time, or be unable to find a bank big enough to hold all the money he was going to make. The reaction often depended on whether or not we liked the guy who won. There were also expressions of exultation or sympathy for the losers, depending on how much we empathized with them or how successful they were in achieving their objective. Objectives were often subtle, since some participants were there to honestly pursue the timber, while others made a submission simply to drive up the price in what we called a “stink bid”.

I enjoyed these sessions and I learned a lot about the industry, but as the process began waning in favor of allowable annual cuts, I began realizing timber sales were a poor mechanism for distributing timber. For instance, having won a timber sale, the first problem a potential operator might encounter was access. The timber sale could be located inside another company’s operating area, and since companies owned all their roads at that time, the road owner could make life miserable for an interloper.

Then there was the business of price fixing. If two operators wanted the same timber, they would make an advance arrangement with a third bidder. By not competing against each other, they could keep the price down.

The combination of lumber market swings and inexperience (or just plain ignorance) could also be a pitfall in the timber bidding process. During high lumber market swings, loggers might be tempted to bid outrageous prices for the wood, then have to walk away because they couldn’t afford to log it when lumber prices dropped again. What looked like tolerable costs when prices were high could turn quickly into an economic disaster, leaving the operator broke and the timber sale unlogged, or worse, only partly logged. We have a perfect illustration of this situation from only a few years ago when this problem was rampant in theU.S.under the very conditions I describe.

Not only can an auction system be disastrous for industry, it can also be unworkable for government, especially one depending on a consistent revenue flow from its timber resource. Unpredictable returns from auction timber combined with the pitfalls I’ve described above can yield erratic revenue returns. For a province such asBritish Columbia, so dependent on forest industry revenues, this situation can impact on both the fiscal operation of the province and the political system—neither of which is amicable.

If you permit me one last negative effect of timber auctions: its impact on global competitiveness. When lumber produced from auction timber is consumed domestically, high prices can frequently be absorbed, but since the forest industry competes in an international forum now, it is no longer practicable. Selling on the international market is more than just putting out a good product, it’s putting it out at a competitive price. This has become blatantly obvious over this last year. The cost of the raw material has a direct impact on a company’s ability to compete—especially in the international markets.

There are obviously many more arguments both in favor of and against public timber auctions, but having already gone through this system in B.C., I can tell you it will take more than the insistence of a few greedy Americans saddled with an unworkable timber auction system of their own, to persuade me B.C. should return to public

timber auctions. They say misery loves company, which may explain why the Americans are trying to get us to change, but far as I’m concerned, they can rot.

Our Readers Respond

Your story in today’s Reporter about ending the “War in the Woods” in the Mid Coast region was a breath of fresh air towards hearing the truth about what’s going on there. I recently left the North Coast area due to massive job instability (Skeena Cellulose) after nine years and am sickened every time I heard greenies and spineless governments spout off about bears, fish and all the other lies they tell about that part of the province.

It infuriates me that these people can publicly tell such destructive lies about somewhere most of them have never even been {let alone] live in, from their comfortable big city arm chairs. Why hasn’t more been done to tell the truth and hold the eco terrorists accountable for their actions?

The fact is there are more god damn bears around there than there’s ever been, and Princess Royal Island has been a protected home for the [Kermode] long before any of this BS ever started. The only impact logging has had on bears is providing them more food than ever in recently logged blocks.

One truck driver told me once [that] he and his wife have been counting birds in the area for more than 20 years and the birds have steadily been increasing in both numbers and [species] since they began. And [it] is always the cut blocks where [they] flourish, where the new [vegetation] and food is.

And fish! Jesus Christ, why can someone say logging is hurting salmon when the drop in numbers always starts at the chuck before the damn fish even get in the rivers?

What a bunch of B.S., and too few people are contesting it.

I never heard anything about this “Great Bear Rainforest” or saw anyone protesting or any of that when I lived there and I think it’s because they know they’d be laughed out of town if they had to stare the truth in the face.

I’d like to [hear] more about what’s really going on and hope that message makes it around as much as the [lies] have. And if Green Peace or any other of these Eco-loser groups gets sued, I hope they get held accountable for the damage they’ve done.

Keven Huffman, Tolko Ind., Vernon, BC

via e-mail

Editor’s Response

Thanks for your e-mail. I can’t add anything to that.

WSPF Buoyant

Under-bought customers upheld a busy market throughout another buoyant week. With buyer uncertainty succumbing to the pressures of immediate needs, order files outpaced production.

Strong sales improved spirits on both sides of the table. Fears of punitive duties or anti-dumping penalties were forgotten as customers restocked.

Transportation was discussed as a possible problem that could develop in the next few weeks. Although some sources are concerned at the large volume of orders currently going out on railcars compared to the small number in past weeks, the major suppliers to this market were sure the railways will iron out the small wrinkle in car availability before it becomes a real problem.

Prices of KD R/L Std&Btr 2×4 raced up $20 to $280. In KD R/L #2&Btr, 2×6 heaped on $14 to $244; 2×8 followed close behind with a $15 increase to $240; 2×10 grew incrementally by $6 to $288; and 2×12 held at $345.

Studs Up & Out

Mills were pleased as they watched production move up and out of the plant. Although prices took another giant leap upward, customers were undeterred. The bargain of the week was KD 2×6 – 92-5/8” PET studs at $260, which were $60 under 2×4 studs selling at $320. Expect 2×6 studs to begin their spring seasonal run soon to meet and surpass 2×4.

ESPF Flying

Quebecproducers are willing to fly in the face of convention. They have raised prices substantially to compensate for anticipated penalties in the new softwood lumber agreement. WhenU.S.customers complain, traders simply tell them: “It’s your own fault.” In spite of their frustration, needs are forcing customers to buy anyway. Mills are selling slowly at the rate of their production and are not taking order files over one week. To inhibit larger order files, traders are told to quote floor price levels or go off the market.

Cedar Uncommitted

While day-to-day needs are being covered by small purchases in cedar, speculators remain uncommitted. The unknown quantity in this market segment, as in the others, is the softwood lumber agreement. What makes cedar unique are the new categories of cedar products being considered for inclusion in the trade restrictions. The uncertainty has created speculators who are withholding their big orders until they can see which products are likely to be affected.

In turn, this predicament has muffled the usual spring boom in cedar. Not only are big individual buyers holding off, but cedar dimension remanufacturers and other industrial customers are also sitting on the fence. Without these key players taking their portion from the world’s largest cedar producers in B.C., production scheduling will be affected.

Although many of the major producers have curtailed production, any downturn in orders is a concern. Rather than reduce prices in an effort to attract buyers, cedar sources have stated they will apply more significant production restrictions and shutdowns.

Fir Favorable

With favorable interest rates and spring weather improving building prospects by the day, traders say now is the time to buy. Builders in theU.S.have approximately three months worth of unsold new homes in a market where six months of unsold advance sales is the norm. Based on these figures, this summer promises to be a seller’s market. The key is not to scare off new home buyers with too few homes and resulting prices that are out of reach.

OSB & Plywood

The pace of OSB activity in centralCanadaincreased this week as spring buying got serious. Buyers, say traders, were under-bought. Warm, even hot weather convinced everyone that now was the time to buy. Demand for OSB was very strong from theU.S.where new home sales jumped a surprising 4.2 per cent during March. Labor issues are still unresolved inToronto, but sinceTorontohousing construction is essentially a plywood consumer, overall OSB consumption is not likely to be adversely affected. 7/16”Torontojumped a surprising $35, ending the week at C$265. Indications are that it will move even higher next week. Order files are through the week of May 14.

Prices for OSB from mills in westernCanadaalso surged higher this week, with most of the push coming fromU.S.buyers.

Demand was widespread and steady, withCalifornia,ArizonaandColoradoleading the way. Sales are also improving inAlbertaand B.C.

Mills are in the driver’s seat, say wholesalers, and are pushing prices as hard as they can. 7/16”Vancouversold quickly at C$255 this week, up $30. Producer asking prices varied. Some were lower than C$255, but they were being revised upward. Mills with higher asking levels took counters, as they waited for buyer demand to catch up with their new levels. Order files are out to end of the week of May 14.

Cargo & Reload

Spring has finally arrived in theU.S.northeast! Job sites are dry or close to it. Yards that thought they had enough lumber in stock to get through May have found that with growing customer demand, they will need to replenish by mid-May. Wholesalers say estimates had been based on weather impaired demand.

Some retailers are being defensive and still think prices will come off. Stocking wholesalers in theU.S.northeast do not agree. Most have bought ahead and are well prepared to meet customer requirements from existing lumber inventory. Wholesalers estimate that it could take up to a month before some customers catch up with buying for the coming construction season.

The pace of price increases in delivered prices to the northeast from mills in theU.S.west is a cause of some concern. Stocking wholesalers point out, however, that when replacement prices equal or exceed selling prices, they have no choice but to raise selling prices. Green fir selling prices moved $5 to $10 higher for all items this week, barely keeping pace with replacement.

Refer to Madison’s Lumber Reporter for the latest news in the lumber industry.

 


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Canadian Government Mills over Logging Industry Market Prices

Volume 52 No. 17, April 26, 2002

The Stupid Canadian Mills

There is probably no more daunting task in the forestry business than logging. It isn’t difficult in the physical sense anymore because of advances in mechanization, but instead of being a burly six footer, you now have to have an iron clad constitution. Imagine having to keep feeding logs to that insatiable monster in the mill yard, while contending with such uncontrollable adversities as the weather, mechanical breakdowns, labor disruptions, forest fires, insect attacks, bureaucracy, and, of course, government regulations. If you think bank heads have nightmares, try asking the logging manager how well he sleeps sometimes.

One of the most onerous and exacting requirements is a B.C. government regulation fondly known as the “use it or lose it” clause. In

simple terms, this proviso compels every B.C. company with quota to harvest within plus or minus 10 per cent of its collective annual allotment over a five-year period. The mill’s insatiable appetite aside, this sole requirement not only drives production, but directs planning and operational activities as well. It is always at the back of every logging manager’s mind, and every logging manager sweats it out every time logging is interrupted for reasons beyond his control. It could be wet weather, an early snowfall, a severe cold spell, a late spring, a forest fire or something else, but invariably, there is the concern that the operation is falling behind on the quota requirement. It can also go the other way when markets are good and the mill is outputting as much as it can.

It’s not hard to imagine the significance of this regulation if you put it in perspective: Picture yourself telling your shareholders, for instance, that the company will have to downsize because it failed to meet the use it or lose it requirement and lost some of its quota? Or that you are in the bank manager’s office asking for a loan to upgrade the plant, then having to explain that there is less collateral this time because your quota was cut back? Scary prospects, eh?

Aside from the external implications, the use it or lose it clause impacts directly on the financial well-being of the operation. One of the most imposing is that the company must operate come hell or high water. Good markets, bad markets, profitability or loss, the operation must continue since it is answering to a higher authority at the end of the five-year period. In virtually every situation, preserving quota supersedes all other considerations, since quota, not assets as is the case in other disciplines, is the stock in trade of the forest industry.

From a government perspective, the use it or lose it clause is the cat’s meow. Not only does it ensure continuous employment, but it also facilitates a consistent and direct flow of revenue to government coffers. At first one might be tempted to think government has the concern of the worker in mind, but that’s merely a side benefit. Any way you scratch it, revenue is at the heart of the matter. Government collects stumpage and royalties from the company, and income tax from the workers.

I’m not knocking the proviso because government is the ultimate beneficiary—a lot of others benefit along the way as well. But from both a management and marketing perspective, the lose it or use it requirement has significant long term disadvantages that impact on how the industry operates and ultimately its financial health.

A significant reflection of the use it or lose it clause is that it has given the B.C. industry an international black eye. This is particularly applicable in theU.S.where the Americans are unable to understand why Canadian mills continue operating in the face of poor market conditions. What’s the matter with those stupid Canadian mills, they ask? Why in hell do they keep operating when the market is down? Continuing to put out wood only adds to the problem and prolongs the market downturn. If they would just stop producing for a while the market would get hungry again, demand would go up, and prices would follow. We could all get back on track! This is a bonafide remark because many American plants shut down when the market sinks too low. It’s not surprising they wonder why we continue operating.

It must be understood that the phrase “use it or lose it” means just that. Fear of losing quota at the end of the five year period drives Canadian operators to continue logging, sawing, and marketing, even though markets are down and they are perhaps losing money doing it. Strange world, isn’t it?

Were I an angry American mill owner— and there are apparently quite a few of them— I’d be agitating to get rid of the B.C. use it or lose it proviso. Eliminating just this requirement has the potential to significantly alter markets and marketing strategies and impact profit and loss trends for North American operations. It just so happens that now might be a good time, since at present, the B.C. government appears amenable to altering this requirement in hopes of providing B.C. operators with more marketing flexibility.

Likely among the first to resist such a change are B.C. mill workers, who see their annual hours being cut. That may not be the case, however, since over the long term, having the flexibility to stop operating when it is unprofitable could mean more financial stability for the company and better levels of profitability. In this situation, employment may not actually be overly affected. Increased profitability will result in more job security, more upgrades and investment in technological change, and more financial benefits. What may at first seem like a bad deal, could ultimately be more beneficial than maintaining the status quo.

So while Americans think Canadian operators are stupid for continuing to produce irrespective of market conditions, it’s not quite that simple. The government’s carrot and stick approach to quota management has served government and employee expectations in the past, but change is the one constant in today’s world. If I were an angry American, I’d say to hell with the rest of theU.S.demands, let’s just tackle this one issue and if we can get rid of it, the other problems will probably sort out themselves. If nothing else, getting rid of the use it or lose it requirement would certainly change the operating parameters for those stupid Canadian mills.

Home Sales Down

The commerce department reports new home sales in theU.S.dropped 3.1 per cent in March, to a seasonally adjusted annual rate of 878,000. This follows a 6.2 per cent upward revision in February figures to 906,000 units from the 875,000 originally reported for the month. Housing starts also fell in March, but despite these decreases, both home sales and starts remain at historical highs. TheU.S.housing market has continued strong through the recession and economists now believe theU.S.recession is over. New home sales fell in all regions but the West. Sales were down 4.4 per cent in the Northeast, 19.3 per cent in theMidwest, and down 0.2 per cent in the South. The West reported an increase of 3.3 per cent.

Existing home sales are also reported down in March. They fell 8.3 per cent to an annualized rate of 5.40 million compared to February’s revised level of 5.89 million. Resalers were down 0.7 per cent compared to year ago figures. Resale homes sold at a breakneck pace during January and February, so the March decline was not unexpected.

Our Readers Respond

Nice work on your April 19 editorial. It gives the proper context for the fictitious wall of wood story. You accurately point out that it is an artifact of the general media sensationalizing their own conjecture based on a poor understanding of the lumber market and how it adjusts to US demand. You also put in place the follow up stories about rail rolling stock being in short supply, which the media then used to support its first array of factoids.

Unfortunately, the outcome of all this bad coverage is the wrong and confusing impression it creates in the public perceptions of an already complicated and intractable situation. Worse, the Americans capitalized nicely on it. I heard last week the CBC Radio Vancouver afternoon show host interview a prominent American lawyer representing the US Coalition. He convincingly undermined the Canadian position. However, his argument was based on the false wall of wood story. Unfortunately, the interviewer was clearly unable to recognize the US political cant.

In fact, the US spokesman was so completely in charge of the interview, he even alleged Dr. Peter Pearse’s report on the West Coast forest industry supported the US position that Canadian mills were subsidized. The host was so flat-footed she couldn’t even

call the lawyer on his narrow, self-serving interpretation of the report. She might have pointed out that Pearse was actually saying that government meddling in the industry had made the mills inefficient. If the mills and government followed Pearse’s advice, they would become more efficient and better able to sell cheaply into the US market. I wish she had the understanding, or had at least read Pearse enough, to have asked what the US response would be if mills in Canada become even more efficient through freer log markets and other proposed reforms. It has been kind of a humiliating week at the hands of our own media. With you the only exception of course.

John Betts, Western Silvicultural Contractors’ Association, Executive Director  ~via e-mail

WSPF Living Large

A couple of huge volume mid-week days were bracketed by a so-so beginning and end. Good follow-through after Wednesday contributed to prices inching upward. Producers filled order files, but did not sell out. There were offerings in all categories at prices under levels from the previous week. Prices slid $5 to $10 with mills taking deep counters off those levels early in the week. By the end of the week, prices had pushed up and mills were still listening to counters, but getting within a couple of dollars of asking levels. To finish the week, KD R/L Std&Btr 2×4 chipped off $1 to $264. In KD R/L #2&Btr, 2×4 gained $3 to $276; 2×6 held at $262; 2×8 poured on $10 to $250; 2×10 tacked on $8 to $268; and 2×12 minused $7 to $293. Order files were into the week of May 6 at most mills.

Cedar Frustrated

Cedar manufacturers ran flat out all week, producing as much as possible for shipment into theU.S.before a new duty goes into effect in May. Orders from nervousU.S.customers multiplied on the basis that everything they could get now would unquestionably increase in value after May 15. Planning was put on hold for the next few weeks while shippers made the most of the duty-free window. However, no one knew what was in the future. If the price doesn’t rise by 20 percent when the duty goes into effect, many producers may go permanently off the market. Unfortunately, buyers don’t care about the impact on the manufacturer as long as their needs are met. If cedar isn’t available at an attractive price, alternate products such as plastic composite decking will fill the gap.

KD Fir Toned Up

Temporary closure of the Simpson Timber mill atTacoma,WA, last week gave this market a shot in the arm. Immediate effects were a better tone to prices and improved demand. Prices on KD R/L Std&Btr 2×4 recovered to $325 within $5 of the previous week’s level of $330. Wider dimensions did not fare as well with 2×6 off $20 to $305 and 2×12 off $15 to $325.

Green Fir Played Off

New selling levels were established after a deep dip early in the week. However, the little bits of activity did little to remedy the notable absence of energy and optimism that are keys to maintaining momentum in this volatile market. Buyers brooded over the softness of prices. Although no one doubted this market had hit bottom the previous week, they were unwilling to be the first to run it up again.

OSB & Plywood

After a dismal start to the week, the central Canadian OSB market recovered some lost ground on Thursday. Construction on the Canadian side is still active, but it was the return of moderate buying from theU.S.that turned prices toward the upside. Traders say that prompt wood was not hard to find from secondary sources, but the supply is shrinking. Mills were pleased to report order files were into the early part of the week of May 6. 7/16”Torontoended the week at C$280, down $20 from last week.

The news was also better from westernCanada, where prices also began firming up late in the week. The weather is still on the cool side inAlbertaand B.C., but construction activity is humming along nicely in theVancouverlower mainland market. The trouble, say traders, is that builders are using OSB they purchased three or four months ago. When the warm weather arrives and the building season gets into high gear, inventories will be consumed and demand is expected to increase. Mills report increased buying from the U.S. Pacific Northwest, Colorado andUtah, althoughCaliforniais not back in a big way. Producers adjusted prices upward toward the end of the week, but are reported to be listening to counters. 7/16”Vancouversold for C$260 this week, off $15 from a week ago.

Cargo & Reload

Lumber buying is still disappointingly low in theU.S.northeast, according to stocking wholesalers. The weather was wet, but not enough to slow construction. With the region experiencing a drought of historic severity, no one complained about the rain. Massive disinterest among buyers resulted in low sales totals. Buyers want only small, highly specified orders, say traders. The softwood dispute is keeping everyone on the sidelines, buying only for immediate needs. Another theory was advanced for the current lack of buying pressure: “Great sales in January and February mean that the market dies in March and April.” Selling prices for green fir and hemlock were little changed this week, with most items trading in a very narrow range. The poor sales volumes could mean even lower prices, according to one large wholesaler. “We’ll listen to counters,” he said. “We want to sell lumber.”

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Government Agreement in the Lumber Forest Logging Industry

Volume 51 No. 16, April 20, 2001

The High Cost of Peace

One of the biggest con jobs in history was foisted on the forest industry and the people of British Columbia on April 4, 2001, when Weyerhaeuser, Canfor, Western Forest Products, Norske Skog Canada, along with six coastal First Nations groups and the B.C. NDP government, signed the Great Bear Rainforest Agreement with environmental groups to end the war in the woods. This agreement, which covers approximately three million hectares of B.C. coast from the northern end of Vancouver Island to Prince Rupert, as well as the Queen Charlotte Islands, consigns the logging industry there to a new regime of conservation-based forest management and ecosystem logging, incorporating methods and equipment yet to be developed.

Originally this area was known as the Mid Coast Region and that’s still the official name, but in instituting their nasty international campaign against forest industry customers, the greenies had to come up with something more provocative, so they called it the Great Bear Rainforest, and that name seems to be sticking. This may not be such a good idea in the long run, however, since this name will doubtlessly carry a negative connotation in the future and serve as a constant reminder of the chicanery perpetuated there, especially for people in the many small communities that are about to experience the abrogating results the deal carries with it.

Part of the greenies’ strategy in achieving this agreement included not only perpetuating a bunch of b.s. about the impact of  onventional coastal clearcutting, but also saving the so-called Spirit Bear—more correctly known as the Kermode bear. In fact, there is

no indication logging posed any threat whatsoever to the bear’s existence, but that was all part of the con job. Put simply, the greenies didn’t want conventional clear cut logging on the mid coast, so they set about to stamp it out any way they could, and they finally achieved their goal with this agreement.

The bare bones explanation of the agreement is as follows: Of the approximately three million hectares, about 600,000 hectares will be set aside for new protected areas with logging deferred on another one million hectares; a community-based consultation process will determine how specific areas are to be managed; the forest industry will incorporate new logging methods and systems that are more environmentally sound; First Nations will be able to start logging operations of their own; environmental groups will kick in a million bucks to help fund scientific assessment of the area (the level of scientific assessment still to be determined); the government will kick in $10 million to help compensate the estimated 500 people who will lose their jobs as a result of the agreement; and environmentalists and logging companies are to be involved jointly in marketing forest products from the region. And—oh yes—the war in the woods is to end.

Near the top of my list of things I don’t like about this agreement is that it was developed by a select few determined to make their piss mark in the snow. The greenies, for instance, are eco-warriors with a single-minded agenda, which is now being imposed on us whether we like it or not. Ask the people in Port Hardy or Bella Coola, or the people who are about to lose their jobs, how they feel about the agreement and I’m sure you’ll hear a different story. Most people in this province earn their living from the forest industry or from activities related to it, and they don’t take kindly to changes that impact negatively on their lives, particularly when those changes are being made simply to satiate a single-minded objective.

Perhaps the most distasteful aspect of the agreement, however, is that it was foisted on the industry by a government desperate for votes. Many times I have harpooned this government for not taking a firm stand on environmental issues, but it has been to no avail. By not opposing the greenies, the government has indirectly sanctioned their activities, and the result has been continual erosion of the forest land base, a constant flow of new environmental rules and regulations, and continually increasing operating costs. B.C. is already the highest cost producer in the world and we don’t need to add to that burden.

After years of resisting the greenies’ onslaught on its own, the industry had to concede defeat the day the greenies launched their international campaign against the industry’s customers. If you can’t sell your products, there isn’t much use producing them. I still have trouble understanding why a government would allow its main source of income to be throttled without making even the feeblest of efforts to protect it. The only plausible explanation I can come up with is that this government actually believes there is majority public support for this agreement and the issue will garner votes. A government driven by votes will sell its birthright if there’s even the hint of a vote—especially the current government. Obviously the NDP has a significant vote problem, but that’s small comfort for the rest of us who are wondering how the hell are we going to earn a living here.

There is much speculation about this agreement since there are still many issues to be resolved, but a certain myth is that the war in the woods is now over. B.S. The ink was barely dry on the agreement when the Forest Action Network (FAN) and the Elaho Valley and King Island protesters started marshaling their troops to carry on the war against the forest companies and their financial institutions. FAN says they weren’t part of the agreement and they want more yet from the industry. For that matter, even Greenpeace, one of the main environmental signatories of the agreement, says not all issues are resolved and it’s not surprising some environmental groups aren’t coming on board.

Not wanting to miss an opportunity for some publicity on the subject, Tom Tevlin, president of the Forest Alliance, tried to explain away the renewed activity by maintaining the Forest Action Network is an extremist group that doesn’t have a social licence to conduct its campaigns. Tevlin said FAN wasn’t there for the solutions and could now lose its relevance. The real extremists are going to fall by the wayside, Tevlin explained, summarily dismissing the problem.

One of the peculiarities of this deal was that it was orchestrated and defended by people who have never had mud on their boots. Individuals such as Tom Tevlin and Linda Coady, vice president corporate relations for Weyerhaeuser Canada, likely wouldn’t know a pike pole from a pickaroon, yet they have played a key role in putting this milestone deal together. I’m sure this agreement doesn’t pose any direct threat to either of their jobs as is the case for some loggers and mill workers, but I can’t help wondering if they would have submitted so readily were that the case?

No matter how you look at it, the B.C. forest industry has been blackmailed into submission, but how much things will change

as a result of this deal is yet to be seen. It’s hard to imagine more financial burdens for the logging industry being brought on by new rules and regulations and new logging practices that may not necessarily result in better forestry. Most certainly there will be lost jobs, lost economic activity, lost timber and lumber production, lost forest land base, and lost revenue for government. The public is doubtlessly placated by the false belief that the impacts will all be borne by forest companies, but don’t forget, for every direct job in the industry, there are four or five multiplier jobs that could also disappear.

Perhaps we will have peace in the woods, perhaps we won’t. Only time will tell. Many believe this agreement is the only way the coastal B.C. industry can continue, but should peace be achieved, I fear it comes at a high price.

U.S. Starts Fall

March housing starts in the U.S. fell 1.3 per cent to an annualized rate of 1.613 million units, the Commerce Department reported. March permits also dropped, declining 3.6 per cent to an annualized rate of 1.615 million units. Single family starts fell 4.3 per cent to a rate of 1.241 million units, while multi family starts rose 11.6 per cent to 376,000 units.

Although there is still a pervasive feeling the U.S. housing sector remains strong, this is the second month in a row U.S. housing starts have declined. At 1.615 million, permits were also below analysts’ expectations, which were set at 1.665 million for March.

Starts declined the most in the South, falling 5.8 per cent; in the Midwest, starts were down 2.8 per cent. An increase of 6.9 per cent in the West and 4.0 per cent in the Northeast provided partial compensation for the overall decrease.

Fraser Mills Closes

Interfor has announced it will close its historic Fraser Mills sawmill located in the B.C. lower mainland at the end of October 2001. 300 sawmill workers and 200 loggers on the central coast will lose their jobs. Interfor President Duncan Davies says the closure is the result of The Great Bear Rainforest deal that preserves large sections of B.C.’s central coast. Interfor is the largest operator in that area. According to Davies, the lost wood represents more than a third of his company’s log supply from that area and a sixth of the total log supply. He says Interfor can’t keep the mill operating in the face of such significant cut reductions.

Defending the Great Bear agreement in the face of the Interfor job losses was B.C.

Premier Ujjal Dosanjh. He said he expected short term job losses, but if it weren’t for the agreement, there would be even more job losses. The NDP government has just anted up another $25 million in addition to the $10 million already committed for workers losing their jobs as a result of the agreement.

WSPF Life Is Good

To a fisherman, nothing puts a bounce in your step and a smile on your face like an early morning when the salmon are running; in the lumber business, it’s a vigorous spring buy. This renewal of life was skipped altogether last year.

Despite plenty of negative pressure, this market has been holding its collective breath, waiting for evidence of a direction. Will it go up or down? Last week’s upward movement could have been a blip on the screen, but combined with this week, there is no denying the trend is UP.

Results could have been much different this week. Mildly negative housing starts and permit figures paired with uncertainty over the Softwood Lumber Agreement could have killed this budding market . On Wednesday, however, Greenspan gave the economy a boost by peeling back the prime interest rate a full half percentage point. Markets from stocks, to commodities, to cash responded immediately with a round of buying. In cash lumber, speculative buying was at a minimum, but with field inventories at such a low level, replenishing stock constituted substantial orders from many customers. Order files grew into the week of May 7 at most mills.

Substantial shipments of western spruce lumber were heading south by rail and by trucks which were lined up to cross at the U.S./B.C. border. Mills stipulated that these shipments were either sold or were heading for their own U.S. reloads. Rail cars are becoming scarce as more rolling stock is going out than is returning, due to recent minimal shipments. Truck transportation is currently flowing smoothly, but labor problems with truckers could arise in the near future.

Prices in KD R/L Std&Btr 2×4 zoomed up $20 to $260. In KD R/L #2&Btr, 2×6 tacked on $15 to $230. Mid-width #2&Btr 2×8, up $5 to $225, was traded very little. Customers were buying 2×4 and consequently mills chose to split 2×8’s to double their 2×4 inventory. The surge was not as evident in wide dimension: KD R/L #2&btr 2×10 rolled up $12 to $282; 2×12 poured on $10 to $345.

Studs Awesome

Superlatives such as big, huge, and awesome inadequately describe the magnitude of stud sales this week. Not only was the order volume up, up, and away, but prices took the biggest one week jump in recent memory. KD WSPF 2×4 92-5/8” PET studs popped upward anywhere from $20 to $30 over the previous week, depending on the manufacturer and when you talked to them. Every level of the buying crowd, from retail buying groups to distribution, was represented. Too conservative for their own good, wholesalers lagged behind the pack and made their buys just after the price whooshed through the roof. Order files expanded into the week of May 7.

MSR Climbing

Dimension dragged MSR up the ladder into the realm of improved prices and plumped order files, which were approximately two weeks. Sales into the southwestern reloads were cited as the biggest volume of the week. Small buys constituted the rest of the order file, but no one was complaining about having so many to write up. Market tone was very good. Specific products in 2×4 were healthiest, while 2×6 MSR was still waiting for the alarm clock to wake it up.

ESPF Piled On

Eastern spruce producers piled dollars on their asking prices this week. Rumors of anti-dumping penalties spurred them into fore-arming themselves by charging extra. The price increase was initiated to cover any penalty on the mill and/or reduce the volume of orders. Prices increased $30 to $50 on KD R/L Std&Btr 2×4 to approximately $360 (f.o.b. Great Lakes zone). New orders at these numbers diminished quickly.

Cedar Good ‘n Rough

Rough timbers were the best of the lot in cedar. Significant sales were booked in 6×6 through 12×12 rough timbers, with 4×6 and 6×8 the only unpopular rough dimensions. Among the appearance grade products, 4×4 was especially desirable.

OSB & Plywood

Even a little wet snow was unable to slow OSB activity in central Canada. Buying was steady for the coming construction season. Wholesalers feel that buyers are under-bought and will be back looking for more product as the weather warms. 7/16” Toronto sold for C$230 this week, up $15. Job sites are still soggy and order files are about three weeks.

In western Canada, the Vancouver lower mainland market slowed this week, but the smaller, active Alberta market more than picked up the slack. Albertans have more money to spend, according to one wholesaler. Most of the buying push this week came from California, along with the Pacific northwest and mountain states. OSB producers are getting close to their asking levels for 7/16” Vancouver, which late this week was selling easily at C$225. Higher mill asking prices are anticipated next week. Order files are well into the week of April 30.

Cargo & Reload

Lumber activity improved this week in the U.S. northeast, but green fir selling prices did not begin to keep pace with surging western SPF prices. There are two reasons for the lagging prices: There is too much lumber on the ground, and buyers know it; and the cool, wet weather makes job sites too wet to work. The prevailing buyer attitude is “I don’t need it so I’m not going to buy it”. Wholesalers have more lumber on hand than they are comfortable with, so they put a lid on prices while they compete with each other in a market where construction buying is still not fully underway.

Green fir selling prices barely moved this week, except for 2×12 which jumped $10 when Hampton went off the market for this item. Green hemlock selling prices moved higher but are still a bargain compared with green fir. Delivered prices for green fir from mills in the U.S. west jumped this week and are now at nearly the same levels as selling prices. This is an indication green fir selling prices are likely to in-crease—a near certainly if the weather

Refer to Madison’s Lumber Reporter for the latest news in the lumber industry.

 


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